Dispute Resolution News

Swedish Court of Appeal dismisses Poland’s challenge of arbitral awards and applies the principles of the Achmea ruling

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.

Background

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.

Commentary

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.

The au­thors are Johannes Ericson and Kajsa Lindvall.