In its judgment dated 25 June 2015, the Svea Court of Appeal annulled a Stockholm Chamber of Commerce award in its entirety on the grounds that the tribunal exceeded its 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 affects, the award shall be annulled in its entirety. Previously, this concept has only been debated in doctrine.
The award is one of very few to have been set aside by the Swedish courts in recent years.
In an arbitration award, pronounced in Stockholm on 9 December 2013, the tribunal settled a dispute between First National Petroleum Corporation (FNP) and OAO Tyummeneftegas (TNG).
The dispute between FNP and TNG concerned a joint venture agreement concluded between the parties in March 1992 related to the exploitation of an oil field in Siberia. FNP alleged in the arbitration proceedings that TNG had violated the joint venture agreement, and claimed damages for breach of contract. The tribunal concluded that TNG had breached the agreement. TNG was ordered to pay damages to FNP, to reimburse FNP for its legal fees and to pay for the arbitration costs.
TNG’s annulment claim
TNG based its annulment claim on the fact that the tribunal had exceeded its mandate, or at least committed procedural errors when trying issues not invoked by the parties. TNG submitted that the tribunal’ s mandate was limited to circumstances stated in the “Joint Summary of Legal Grounds” (“Summary”). The Summary was drafted on the tribunal’s initiative but in the end agreed upon by the parties. The Summary set the scope for the claim in the arbitration.
In the Summary, FNP only invoked the fact that TNG had made oral misinterpretations about the oil flows. FNP did not invoke anything regarding the oil reserves. Throughout the arbitration proceedings, both TNG and FNP differentiated between the terms “oil flows” and “oil reserves”, and nowhere in the Summary or other procedural material is it stated that the term oil flows would include or cover the term oil reserves. A distinction between the terms is also made in the award. The Tribunal nevertheless tried the question of whether TNG had made misinterpretations about the amount of its estimated oil reserves.
The tribunal found that TNG had given FNP certain information regarding its oil reserves, that this information was incorrect, and that TNG knew that the information was incorrect, concluding that TNG had purposely mislead FNP on this point. Furthermore, the tribunal found that FNP had withdrawn from the project due to the misrepresentation that TNG had made regarding the oil reserves and that TNG thereinafter failed to correct the incorrect information. As a consequence, the tribunal based its decision on the fact that TNG has mislead FNP regarding the oil reserves not the oil flows. By doing so the tribunal exceeded its mandate.
Reasoning and decision of the Svea Court of Appeal
In arbitration proceedings, the starting point is that the arbitral tribunal is bound to make its decision based on the circumstances invoked by the parties. If the arbitral tribunal bases its decision on a circumstance which has not been invoked, it should generally be deemed to have exceeded its mandate (a different approach might be taken in international disputes).
In the case at hand, the Svea Court of Appeal concluded that the Summary provided a framework for the tribunal and that the proceedings were limited to the grounds and legal facts invoked in the Summary. The Svea Court of Appeal found that, by examining factual circumstances, legal facts, which had not been invoked by FNP, the tribunal had exceeded its mandate.
The Svea Court of Appeal also assessed whether it is required that the excess of mandate must affect the outcome of the tribunal’s decision, in order for the challenge to succeed.
The position in Swedish doctrine has been that an arbitration award shall be annulled in its entirety or partially insofar as the arbitrators have exceeded their mandate. The parts of the award which are unaffected by the excess of mandate shall not to be annulled. Therefore, the arbitration award is only to be set aside to the extent it is affected by the excess of mandate. This means that if the arbitrators in their examination of several claims have exceeded the arbitration agreement on one claim only, the arbitration award is not to be set aside in its entirety, but only to the extent it follows from the excess of mandate. After the arbitration award has been partially annulled, a new ruling can be made on the part concerned.
However, in some cases a court might not be able to order the partial annulment of the award insofar as it is affected by the excess of mandate: (i) It might not be possible to divide up the award and determine the part affected by the excess of mandate. (ii) Or, even if a division is theoretically possible, some questions might overlap in such a way that the partial upholding of the award is neither possible nor desirable.
The Svea Court of Appeal held that in those cases, the court has no discretion to refrain from setting an award aside on the basis that the effects of the excess of mandate are unclear. The award shall be annulled in its entirety. The Svea Court of Appeal nevertheless noted that exceptions on this point may possibly be made for cases where the excess of the mandate is of such slight importance that setting aside the arbitration award in its entirety would be clearly disproportional. In its judgment, the Svea Court of Appeal did not allow the appeal to the Supreme Court.