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.
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.
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).