article / 24 Jan 2023
Swedish courts have recently set aside an unusually large number of arbitration awards
Under Swedish law, an arbitration award may not be appealed. It is however possible to challenge an arbitral award on procedural or formal grounds, e.g. if the award violates public policy or if the arbitral tribunal exceeds its mandate when adjudicating the dispute. In such case, the Svea Court of Appeal (Sw: Svea hovrätt) may invalidate or set aside the arbitral award, but it cannot change the award on its merits.
It is not unusual that an arbitral award is challenged. Svea Court of Appeal received ten challenged awards to decide upon 2022. Such claims are however rarely successful. Historically, only a few percent of these claims have led to the arbitral award being set aside. During the end of 2022, these statistics were changed as four arbitral awards were successfully challenged. We do not believe that this means that the Swedish courts have adopted a new approach to challenged arbitral awards, but it may be interesting to shortly comment on these cases.
Svea Court of Appeal case no. T 1356-18, 4 November 2022
Svea Court of Appeal set aside an arbitral award on 4 November 2022. The underlying dispute was between a Russian steel producer and a Chinese contractor. The steel producer had terminated its contract with the contractor. The terminated contract was an assignment agreement to design and build a factory for the production of railway rails. The contractor initiated the arbitration, stating that the termination was unjustified. The contractor claimed payment amounting to USD 45 million. The arbitral tribunal concluded that the termination of the contract was justified, but found that the steel producer still had to pay USD 17 million to the contractor.
The award was challenged, and Svea Court of Appeal found that the arbitral tribunal had exceeded its mandate in several aspects.
Firstly, by awarding compensation for costs that had not been claimed for. In short, the tribunal awarded the contractor compensation for specific accrued costs, while the contractor had claimed payment in accordance with the contract between the parties.
Secondly, the tribunal had, according to the Svea Court, exceeded its mandate by relying upon facts that had not been argued. Neither of the parties had invoked statements or evidence related to the accrued costs. Further, the tribunal had used its own knowledge of industry profit margin to determine the award.
Lastly, the tribunal had, according to the Svea Court, failed to consider a limitation issue that had been invoked.
The Svea Court set aside the award. The Svea Court also decided that the judgement may be appealed to the Supreme Court.
Svea Court of Appeal case no. T 3623-21, 24 November 2022
In the second successfully challenged award, the Svea Court of Appeal, yet again, found that the arbitral tribunal had exceeded its mandate. The tribunal had, according to the Svea Court, rendered an award over something different than what had been invoked by the claimant. The underlying dispute related to the duty to provide a sufficient guarantee under a rental agreement. The claimant sought a guarantee in the amount of a specific sum of money. The tribunal awarded a guarantee that corresponded to a certain number of monthly rental payments. The Svea Court of Appeal found that the tribunal’s award was not comparable with the relief sought and decided to set the award aside.
One of the judges in the Svea Court had a dissenting opinion. He argued that it was proved that the tribunal had discussed an issue with the relief sought and that the claimant must have understood that the tribunal was of the opinion that it had the mandate to render the award that was rendered.
Yet again, the Svea Court of Appeal decided that the judgement may be appealed to the Supreme Court.
Svea Court of Appeal case no. T 4658-18, 13 December 2022
The last two cases are connected and different from the two above. The last two awards are both challenged in the light of the well-known Achmea ruling, in which the CJEU decided that an investor-state arbitration clause in the Netherlands-Slovakia bilateral investment treaty (BIT) was incompatible with EU law and thus invalid ( 6 March 2018, case no. C 284/16.).
In the Svea Court of Appeal case no. T 4658-18, the underlying dispute was between Spain and the Luxembourg company, Novenergia. The arbitral tribunal awarded Novenergia EUR 53.3 million in damages on the grounds that Spain had violated standards of fair treatment under the Energy Charter Treaty (ECT). The violation was an effect of Spain’s reform of renewable energy. The arbitral award was issued just a month before the Achmea ruling.
Spain challenged the award inter alia on the ground that the tribunal lacked jurisdiction, i.e. that Spain and Novenergia were unable to agree that the issues in question could be resolved through arbitration on the basis of the ECT in an intra-EU context.
The Svea Court of Appeal found that the award concerned questions which were not arbitrable and therefore declared the award invalid.
Swedish Supreme Court case no. T 1569-19, 14 December 2022
The last case is from the Supreme Court of Sweden. The underlying dispute was between the company PL Holding and the Republic of Poland. The arbitration proceeding was initiated under a bilateral investment treaty (BIT). The arbitral tribunal rejected the objection that the arbitration clause in the investment treaty was invalid and awarded damages to PL Holdings, in a partial award. The size of the damages was later decided in a final award. The two awards rendered by the tribunal were first challenged to the Svea Court of Appeal. The Svea Court of Appeal concluded that the awards should not be annulled or set aside. The court found that the Achmea ruling did not prevent an EU Member State and an investor to enter into an ad hoc arbitration agreement.
Poland appealed to the Supreme Court, which referred a question to the CJEU. The question was whether the principles laid down in the Achmea ruling not only invalidated an arbitration clause under an intra-EU investment treaty, but also prevented an investor and a Member State from concluding an ad hoc arbitration agreement on the same terms as un-der the investment treaty.
CJEU concluded in its preliminary ruling (PL Holdings, C-109/20) that “Articles 267 and 344 TFEU must be interpreted as precluding national legislation which allows a Member State to conclude an ad hoc arbitration agreement with an investor from another Member State that makes it possible to continue arbitration proceedings initiated on the basis of an arbitration clause whose content is identical to that agreement, where that clause is contained in an international agreement concluded between those two Member States and is invalid on the ground that it is contrary to those articles.”
The Swedish Supreme Court declared the arbitral awards to be invalid on the grounds that the arbitral proceeding was clearly incompatible with the basic principles of the Swedish legal system (ordre public).
As it is very rare for arbitration awards to be set aside in Sweden, the two first awards from the Svea Court of Appeal, setting aside the awards on formal grounds, may come as a bit of a surprise. However, the awards from the Svea Court of Appeal both emphasize the important rules for arbitrators to not divert from what has been invoked by the parties (and to consider all the arguments put forward).
The last two cases, declaring two intra-EU investment arbitration awards invalid as the awards contradict fundamental principles of EU law, are both rendered in the light of Achmea. It is clear that the possibility for a Member State to enter into an arbitration agreement with a private party is restricted.