Svea Court of Appeal rendered an award on 22 February 2019 regarding challenge of arbitral awards between the Republic of Poland and an investment company from Luxembourg. The case before the Court of Appeal concerned several issues, but of particular interest was the issue whether the arbitration clause of the relevant bilateral investment treaty was valid in light of the Achmea ruling from March 2018. In its reasoning, Svea Court of Appeal applies the principles set forth in the Achmea ruling and emphasises the importance of raising objections at the initial stage of the arbitration.
On 26 November 2016, an investment company registered in Luxembourg (the “Investor”) commenced arbitral proceedings against the Republic of Poland in Sweden under the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce. The arbitration was based on an arbitration clause in an investment treaty between Poland and Luxembourg dated in 1987 (the “Treaty”).
The dispute concerned Poland’s alleged breach of the Treaty by expropriation of the Investor’s shares in a Polish bank. The arbitral tribunal rendered a partial award whereby Poland was held liable and a final award in which Poland was ordered to compensate the Investor in the amount of approximately SEK 1.5 billion plus interest and costs.
Poland challenged the awards before the Svea Court of Appeal (the “Court”) and sought to have them declared invalid or set aside. Poland based most of its arguments on the so-called Achmea ruling from the Court of Justice of the European Union (the “ECJ”) from March 2018, (C-284/16, EU:C:2018:158). In that ruling, the ECJ established that an arbitration clause in a bilateral investment treaty between EU member states is incompatible with certain key principles of EU law.
On the basis of the Achmea ruling, Poland argued that the dispute was not arbitrable since it was a dispute between an investor and a member state under an intra-EU bilateral investment treaty. Further, Poland argued that the content of the awards, and the manner in which the award arose, were contrary to fundamental principles of EU law and hence in breach of Swedish public policy. Poland also argued that the arbitration agreement was invalid because the arbitration clause of the Treaty was incompatible with EU law, entailing that the awards should be set aside.
The reasoning of the Svea Court of Appeal
The Court took its starting point in the principles established through the Achmea case. The Court stated that the ECJ has established that EU law precludes a provision in an international agreement concluded between member states under which an investor from one of those member states may, in the event of a dispute concerning investments in the other member state, bring proceedings against the latter member state before an arbitral tribunal whose jurisdiction that member state has undertaken to accept. In the Achmea ruling, the ECJ separated commercial disputes based on the parties’ express consent to arbitrate from investor- state arbitration and stated that EU law does not preclude commercial arbitration.
After outlining the principles set forth in the Achmea ruling, the Court assessed Poland’s argument that the dispute was not arbitrable on the basis of the principles from the Achmea ruling. The Court held that the dispute was arbitrable since it concerned matters in respect of which the parties could reach a settlement (Poland’s breach of the Treaty and its liability therefor).
As regarded Poland’s assertion that the award was contrary to Swedish public policy being incompatible with EU law, the Court held that the content of the awards did not infringe fundamental provisions of EU law, unlike the circumstances in the Eco Swiss ruling (C-126/97, EU:C:1999:269). The Court continued to assess whether the manner in which the award arose was contrary to public policy. The Court held that the Achmea ruling, does not prevent a member state from entering into a valid arbitration agreement directly with an investor based on the freely expressed wishes of the parties, i.e. commercial arbitration. In this case, Poland participated in the arbitral proceedings and did not raise the relevant objection until six months after its statement of defence. The Court held that, unlike the Mostaza Claro ruling (C-168/05, EU:C:2006:675), there was no obligation for the Court to ensure ex officio that mandatory EU law is upheld for the protection of a weaker party. Therefore, the Court concluded that the way in which the arbitral award had been rendered did not violate public policy.
In addition, the Court assessed Poland’s argument that the arbitration was not based on a valid arbitration agreement and that the provision of the Swedish Arbitration Act regarding waiver (Sw. preklusion) of challenge should not be applied. The Court held that Poland had waived its right to object on this ground by failing to raise an objection in its statement of defence and that, based on the EU principle of procedural autonomy, the procedural rules contained in the Swedish Arbitration Act should apply. Consequently, Poland was found to have waived its right to raise the argument that there was no valid arbitration agreement.
Finally, Poland argued that the arbitral tribunal had exceeded its powers (Sw. uppdragsöverskridande) and conducted several procedural errors (Sw. handläggningsfel) during the arbitration. The Court rejected most of these objections. However, the Court held that the arbitral tribunal had committed one error during the arbitration proceedings which led to the setting aside of one paragraph in the final award regarding post-award interest of approximately SEK 200 million.
This case is interesting both from a national and an international perspective.
The Court decided not to request a preliminary ruling from the ECJ since there was no such request from the parties and it was not deemed necessary for the Court to rule on the case. Thus, it would appear that the Court considered the precedents of the Achmea case to be clear; the Achmea ruling shall arguably not be given a wide interpretation and does not preclude commercial arbitration based on the freely expressed wishes of the parties.
Following the Achmea ruling, the market expected a certain increase in the number of (successful) challenges of arbitral awards rendered under intra-EU bilateral investment treaties. Although the full and final effects of the Achmea ruling remain to be seen, this ruling from the Svea Court of Appeal serves as a reminder that each member state’s national procedural law plays an important role in the challenge of an award.
The Court granted leave to appeal to the Swedish Supreme Court and the award has subsequently been appealed to the Supreme Court (case no. T 1569-19). It should be noted that the Supreme Court may request a preliminary ruling from the ECJ.