Tvistlösning Nyhet

Challenge of arbitral award dismissed notwithstanding procedural error by the tribunal

On 20 March 2019, the Swedish Supreme Court dis­mis­sed a chal­lenge of an ar­bi­tral award de­spi­te de­ter­mi­ning that the tri­bu­nal had com­mitted a pro­ce­du­ral er­ror. The award in­vol­ves a num­ber of is­sues, of par­ticu­lar in­te­rest is that the Supreme Court ex­ten­si­vely re­fers to in­ter­na­tio­nal le­gal sour­ces. This ser­ves as a con­fir­ma­tion that the Swedish Supreme Court ac­k­now­led­ges that is­sues ari­sing in in­ter­na­tio­nal ar­bitra­tion may ha­ve wi­despre­ad in­ter­na­tio­nal ap­pli­ca­bi­li­ty.

Background

A Belarusian com­pa­ny (the ”Buyer”) and a Turkish com­pa­ny (the “Contractor”) had en­te­red in­to a contract re­gar­ding the pro­vi­sion of in­ter alia con­struc­tion works in two mi­ne shafts in Turkmenistan (the “Contract”). A dis­pu­te aro­se between the par­ti­es and the Contractor de­man­ded pay­ment of ap­prox­i­ma­tely USD 11,000,000 for pro­vi­ded ser­vices and USD 20,000,000 in da­ma­ges. The Buyer con­tested the claim and al­le­ged that the ser­vices we­re faul­ty and as a re­sult the­re­of was en­tit­led to com­pen­sa­tion of roughly USD 10,000,000.

The dis­pu­te was re­sol­ved by ar­bitra­tion un­der the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (the “SCC Rules”) and the seat was Stockholm, Sweden. The award was ren­de­red on 3 April 2015, which or­de­red the Buyer to pay the Contractor ap­prox­i­ma­tely USD 9,000,000 in ad­di­tion to the Buyer’s claims be­ing dis­mis­sed.

The award was chal­leng­ed be­fo­re the Svea Court of Appeal and an­nul­led to the ex­tent that the Buyer on­ly had to pay the Contractor ap­prox­i­ma­tely USD 7,500,000. The Buyer ap­pe­a­led to the Swedish Supreme Court (the “Court”), clai­ming that the award should be an­nul­led in its en­tire­ty (with an ex­cep­tion re­la­ted to the costs of the ar­bitra­tion). In short, the Buyer clai­med that the tri­bu­nal had; (i) de­ci­ded on is­sues that we­re not co­ve­red by the ar­bitra­tion clau­se between the par­ti­es, (ii) ex­cee­ded its man­da­te or com­mitted a pro­ce­du­ral er­ror by not ru­ling on a cir­cumstan­ce that was in dis­pu­te, (iii) com­mitted a pro­ce­du­ral er­ror by not pro­vi­ding the Buyer with the op­por­tu­ni­ty to ar­gue its ca­se and (iv) com­mitted a pro­ce­du­ral er­ror by ren­de­ring an award that was not sup­por­ted by evi­dence. The Contractor al­so ap­pe­a­led and clai­med that no part of the award was to be an­nul­led.

The re­a­so­ning of the Supreme Court

Had the tri­bu­nal de­ci­ded on is­sues not co­ve­red by the ar­bitra­tion clau­se between the par­ti­es?

The Buyer ar­gu­ed that part of the re­mu­ne­ra­tion that the Contractor was en­tit­led to ac­cor­ding to the award con­cer­ned ser­vices that had be­en pro­vi­ded un­der sup­ple­men­ta­ry agre­e­ments to which the ar­bitra­tion clau­se in the Contract did not ap­p­ly.

The Court sta­ted that an ar­bitra­tion clau­se must con­cern a spe­ci­fic le­gal re­la­tions­hip between the par­ti­es to the agre­e­ment and that its ap­pli­ca­bi­li­ty is de­ter­mi­ned by me­ans of in­ter­pre­ta­tion. Where neit­her the wor­ding nor ot­her re­le­vant cir­cumstan­ces pro­vi­de any gui­dan­ce, it may of­ten be as­su­med that the par­ti­es’ in­ten­tion is that any po­ten­ti­al dis­pu­tes are to be re­sol­ved in a quick and co­he­rent man­ner.

The Court held that the con­cept “le­gal re­la­tions­hip” ought to ha­ve a wi­de ap­pli­ca­bi­li­ty, with re­fe­rence to in­ter alia the New York con­ven­tion on the re­cog­ni­tion and en­for­ce­ment of fo­rei­gn ar­bi­tral awards. The Court re­fer­red to a num­ber of its pre­ce­dents whe­re­in ar­bitra­tion clau­ses we­re de­e­med to ha­ve a wi­der ap­pli­ca­bi­li­ty than the le­gal re­la­tions­hip in the ori­gi­nal agre­e­ment to which the ar­bitra­tion clau­se is ap­pli­cab­le. Lastly, the Court no­ted that it is ty­pi­cal­ly the tri­bu­nal that is best equip­ped to de­ci­de whet­her the mat­ter at hand is co­ve­red by an ar­bitra­tion clau­se.

The tri­bu­nal had held that the sup­ple­men­ta­ry works had be­en car­ri­ed out “wit­hin the contractu­al fram­ework between the par­ti­es established by the [Contract]” and that it had not be­en con­tested that the ad­di­tio­nal works we­re con­nec­ted to the Contract in a num­ber of ways. The tri­bu­nal had the­re­fo­re ru­led that the works we­re co­ve­red by the ar­bitra­tion clau­se in the Contract.

The sup­ple­men­ta­ry agre­e­ments al­so con­tai­ned se­pa­ra­te dis­pu­te re­so­lu­tion clau­ses that en­tai­led that a Belarusian court was com­pe­tent to de­ci­de on po­ten­ti­al dis­pu­tes. However, the tri­bu­nal had de­e­med that the­se clau­ses be­sto­wed a right, but not a du­ty, to the Parties to pur­sue po­ten­ti­al claims in the Belarusian court. With re­fe­rence to the tri­bu­nal’s re­a­so­ning, the Court held that the tri­bu­nal had not de­ci­ded on is­sues not co­ve­red by the ar­bitra­tion clau­se in the Contract.

Had the tri­bu­nal ex­cee­ded its man­da­te or com­mitted a pro­ce­du­ral er­ror by not de­ci­ding on a cir­cumstan­ce that was in dis­pu­te?

According to the award, the Contractor was en­tit­led to a cer­tain in­te­rest that was cal­cu­la­ted ba­sed on in­vo­i­ces that the Buyer had be­en pro­vi­ded with. The Buyer clai­med that the tri­bu­nal had er­ro­ne­ously as­su­med that the Parties we­re in agre­e­ment that the Contractor was en­tit­led to in­te­rest from the da­te of each in­vo­ice.

The Court sta­ted that the is­sue at hand (i.e. when it is al­le­ged that a tri­bu­nal has wrongly as­su­med that a cir­cumstan­ce was not in dis­pu­te) is a ques­tion of whet­her the tri­bu­nal has com­mitted a pro­ce­du­ral er­ror. As a star­ting point, an award will not be an­nul­led if the clai­mant (in the chal­lenge pro­cee­dings) is de­e­med to ha­ve cau­sed the pro­ce­du­ral er­ror. Of re­le­van­ce to this as­sess­ment is if the clai­mant can show that the tri­bu­nal’s as­sump­tion was un­foun­ded and that this as­sump­tion li­kely had af­fec­ted the outcome of the ar­bitra­tion. Generally, it is al­so requi­red that the pro­ce­du­ral er­ror is of re­a­so­nab­le im­por­tan­ce to the clai­mant.

The Court held that a pro­ce­du­ral er­ror had be­en com­mitted sin­ce the tri­bu­nal in the award had no­ted the Buyer’s re­jec­tion of the cal­cu­la­tion of the in­te­rest whi­le at the sa­me ti­me sta­ting that the met­hod of cal­cu­la­ting the in­te­rest was not in dis­pu­te. However, the con­se­quences of the pro­ce­du­ral er­ror, with re­fe­rence to the outcome of the cal­cu­la­tions, did not amount to an er­ror of re­a­so­nab­le im­por­tan­ce to the Buyer. The Buyer’s claim in this re­gard was the­re­fo­re re­jec­ted.

Had the tri­bu­nal com­mitted a pro­ce­du­ral er­ror by not pro­vi­ding the Buyer with the op­por­tu­ni­ty to ar­gue its ca­se?

The Buyer clai­med that the tri­bu­nal had re­jec­ted its re­quests for be­ing gran­ted ad­di­tio­nal ti­me to gat­her evi­dence and the ap­point­ment of an in­de­pen­dent ex­pert. The tri­bu­nal had the­re­fo­re not pro­vi­ded the Buyer with the op­por­tu­ni­ty of pro­ving that the­re we­re er­rors in the ser­vices pro­vi­ded by the Contractor. The Buyer ar­gu­ed that this con­sti­tu­ted a pro­ce­du­ral er­ror.

The Court no­ted that ac­cor­ding to the SCC Rules a pre­li­mi­na­ry ti­me­li­ne is to be laid out for the ar­bitra­tion, which the par­ti­es and the tri­bu­nal ought to ad­he­re to. A par­ty may, ho­wever, be gran­ted ad­di­tio­nal ti­me to e.g. gat­her evi­dence, pro­vi­ded it is not in­ap­pro­pri­a­te. The Court held that, in ge­ne­ral, the tri­bu­nal is best su­i­ted to de­ci­de whet­her ad­di­tio­nal ti­me ought to be gran­ted. Accordingly, the tri­bu­nal’s de­ci­sion is to be ac­cep­ted as­su­ming it do­es not ap­pe­ar to be in­de­fen­sib­le. A furt­her requi­re­ment is that the need for ad­di­tio­nal ti­me is not to be ascri­bed to the re­ques­ting par­ty’s own ac­tions; the need for ad­di­tio­nal ti­me must be due to cir­cumstan­ces beyond the par­ty’s con­trol which the par­ty could not re­a­so­nably ha­ve fo­re­seen. Finally, it is al­so requi­red that no ac­cep­tab­le al­ter­na­ti­ves to pur­sue the par­ty’s po­si­tion are avai­lab­le. As re­gards a dis­mis­sed re­quest to ap­point an in­de­pen­dent ex­pert, the Court held that this can­not con­sti­tu­te a pro­ce­du­ral er­ror, un­less ot­her­wi­se agreed between the par­ti­es.

The Court held, with re­fe­rence to the cir­cumstan­ces in this par­ticu­lar ca­se, that no pro­ce­du­ral er­ror had be­en com­mitted and the­re­fo­re re­jec­ted the Buyer’s as­ser­tion to the cont­ra­ry.

Had the tri­bu­nal com­mitted a pro­ce­du­ral er­ror by ren­de­ring an award that was not sup­por­ted by evi­dence?

Lastly, the Buyer clai­med that the tri­bu­nal had ac­cep­ted part of the Contractor’s claim de­spi­te that no evi­dence had be­en pre­sen­ted the­re­to, ef­fecti­vely con­sti­tu­ting a pro­ce­du­ral er­ror. The Court held that a tri­bu­nal’s as­sess­ment in evi­den­ti­a­ry is­sues can­not be de­e­med an is­sue of pro­ce­du­re (or ex­cee­ding of man­da­te). The Buyer’s claim was the­re­fo­re re­jec­ted in this part as well.

To sum­ma­ri­se, all of the Buyer’s claims we­re dis­mis­sed by the Court and the Svea Court of Appeal’s award was over­ru­led. Accordingly, no part of the tri­bu­nal’s award was an­nul­led.

Commentary

It is in­te­re­s­ting to no­te that the award was not an­nul­led in part, notwit­h­stan­ding that a pro­ce­du­ral er­ror had be­en com­mitted. The pro­ce­du­ral er­ror was such that it was ea­sy to establish how it had af­fec­ted the Buyer (i.e. by me­ans of a simp­le com­pa­ri­son between the two al­ter­na­ti­ves of cal­cu­la­ting the in­te­rest). The Court held that the award was not to be an­nul­led with re­fe­rence to the pro­ce­du­ral er­ror not be­ing of re­a­so­nab­le im­por­tan­ce to the Buyer. The Court’s as­sess­ment amounts to a re­a­so­nab­le dis­tri­bu­tion of risk between the par­ti­es to an ar­bitra­tion and ser­ves as a remin­der that not all pro­ce­du­ral er­rors com­mitted by a tri­bu­nal are worth pur­su­ing in chal­lenge pro­cee­dings.

From a met­ho­do­lo­gi­cal point of vi­ew it ought to be no­ted that the ru­ling ex­ten­si­vely re­fers to in­ter­na­tio­nal le­gal sour­ces, in par­ticu­lar with re­gard to the is­sue of whet­her the tri­bu­nal had de­ci­ded on mat­ters that we­re not co­ve­red by the ar­bitra­tion clau­se between the par­ti­es. Accordingly, the ru­ling con­firms that the Swedish Supreme Court ac­k­now­led­ges the in­ter­na­tio­nal cha­rac­ter of (in­ter­na­tio­nal) ar­bitra­tions and that is­sues that ari­se in chal­lenge pro­cee­dings may ha­ve wi­despre­ad in­ter­na­tio­nal ap­pli­ca­bi­li­ty. This ac­k­now­led­ge­ment ser­ves to ma­ke ar­bitra­tion in Sweden mo­re ac­ces­sib­le to fo­rei­gn par­ti­es, which is in li­ne with the le­gis­la­tor’s in­ten­tions with re­fe­rence to the re­cent changes to the Swedish Arbitration Act (for a sum­ma­ry of the­se changes, ple­a­se click he­re).

The au­thors are Johannes Ericson and Jakob Andersson.