Sweden: Two different arbitration cases

Author: | Published: 1 Apr 2009
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Two recent decisions from Swedish courts cast light on the role of the International Bar Association Guidelines on conflicts of interest in international arbitration (IBA Rules) in Swedish arbitrations and, among other things, indicate a possible difference as to the application of the IBA Rules to arbitrations governed by the Swedish arbitration law (SFS 1999:116, the Arbitration Act) and arbitrations governed by the Arbitration Rules of the Stockholm Chamber of Commerce (the SCC Rules).

Introduction

Since the publication of the IBA Rules in 2004 its detailed standards have proven to be of great value to arbitrators facing possible conflicts of interest situations. However, until recently Swedish courts and the Arbitration Institute of the Stockholm Chamber of Commerce (SCC) have been moderate in their comments on the applicability of the standards to arbitrations governed by the Arbitration Act and the SCC Rules respectively, giving rise to an uncertainty as to what role, if any, the international IBA Rules play in arbitrations governed by such sets of rules (in this article referred to as Swedish arbitrations).

It is therefore with great satisfaction that the Swedish arbitration community welcomes two recent decisions from the Swedish courts casting a light on the role of the IBA Rules in Swedish arbitrations.

The Arbitration Act and the SCC Rules

The Arbitration Act's provisions on conflicts of interest as well as the SCC Rules' provisions on conflicts of interest are based on the notion that every arbitrator must be impartial (section eight of the Arbitration Act and article 15 of the SCC Rules respectively). It is generally agreed that both sets of rules, although worded differently, are to be interpreted as expressing a high standard of impartiality in line with the Uncitral Model Law on International Commercial Arbitration (1985). While neither of the two sets of rules contains any detailed standards comparable to the IBA Rules, section eight of the Arbitration Act provides a list of circumstances that shall always be considered to be circumstances that may diminish confidence in an arbitrator's impartiality. The list however only provides a few examples and is not intended to be exhaustive (see Governmental Bill 1998/99 pages 85 and 218).

Under the Arbitration Act an arbitrator can be challenged if circumstances exist which may "diminish confidence in the arbitrator's impartiality" (section eight of the Arbitration Act). Under the SCC Rules an arbitrator can be challenged if circumstances exist "which give rise to justifiable doubts as to the arbitrator's impartiality or independence" (article 15 of the SCC Rules).

A challenge to an arbitrator during an ongoing arbitration under the Arbitration Act shall be made to the arbitral tribunal, the decision of which – should the challenge be unsuccessful – may be appealed to the public courts (section 10 of the Arbitration Act). A challenge to an arbitrator during an ongoing arbitration under the SCC Rules shall be made to the SCC, the decision of which is final. As a general rule, the SCC does not state reasons for its decision.

Once an arbitral award has been rendered, it – whether rendered under the Arbitration Act or the SCC Rules – may be challenged due to an arbitrator's disqualification to act as arbitrator in the case (section 34 of the Arbitration Act). Such a challenge shall be made before the Court of Appeal within the jurisdiction where the arbitral proceedings were held or, where the place of arbitration is not stated in the award, before the Svea Court of Appeal (section 43 of the Arbitration Act).

The Ericsson case

In the case of Anders Jilkén v Ericsson AB, decision rendered by the Supreme Court on November 19 2007, an arbitral award was challenged on the ground that the chairman of the arbitral tribunal, a renowned arbitrator and former Justice of the Swedish Supreme Court, had been disqualified to act as arbitrator in the case. It was claimed that the chairman had been disqualified as Ericsson, and the group of companies to which Ericsson was part (the Ericsson Group), was a client of the law firm to which the chairman was affiliated.

The facts presented to the Supreme Court showed that the chairman's practice primarily consisted of acting as an arbitrator. The chairman was affiliated with the law firm in question not as a partner, counsel or associate, but as a part-time consultant. As a consultant the chairman's role at the law firm was to provide in-house advice to lawyers at the firm. For this work, the chairman received a fixed remuneration that made up almost 20% of his total income. Further, the chairman had an office on the law firm's premises and access to the law firm's conference rooms and stationery. The law firm had for many years had considerable engagements for the Ericsson Group. During his work at the law firm, the chairman had in fact provided advice to the Ericsson Group, although he had not had any direct client contact with it.

The circumstances in the Ericsson case do not appear on the non-exhaustive list of circumstances that according to section eight of the Arbitration Act shall always be considered to be circumstances that may diminish confidence in an arbitrator's impartiality. The circumstances however appear on both the waivable red list (article 2.3.6 – "The arbitrator's law firm currently has a significant commercial relationship with one of the parties or an affiliate of one of the parties.") and the orange list (article 3.1.4 – "The arbitrator's law firm has within the past three years acted for one of the parties or an affiliate of one of the parties in an unrelated matter without the involvement of the arbitrator.") of the IBA Rules.

In its ruling the Supreme Court noted that: "[R]eference has been made in the case to rules regarding conflicts of interest in international arbitration law that have been issued by the IBA. Even though the examination of the case shall be conducted on the basis of the provisions of the Arbitration Act, in view of the similarities between the rules and the frequent occurrence of international aspects in these activities there may be reason to also look at the application of rules and guidelines of this kind."

In its concluding remarks, the Supreme Court further noted that: "At least when, as in the present case, the relationship between the law firm and the client is commercially important to the law firm, the bond of interest and loyalty between on one side the law firm's partners and employed lawyers and on the other side the client is a circumstance that can call into question the impartiality of an arbitrator employed by the law firm when the client is a party in the arbitration. Such a conclusion finds support in the IBA [Rules] and in case-law from the SCC".

Against this background the Supreme Court concluded that the circumstances of the case called into question the impartiality of the chairman and set aside the arbitral award challenged by the claimant.

The Korsnäs case

In the case of Korsnäs Aktiebolag v AB Fortum Värme samägt med Stockholms stad, decision rendered by the Svea court of appeal on December 10 2008, an arbitral award was challenged on the ground that the arbitrator appointed by the respondent, a renowned Swedish arbitrator, had been disqualified to act as an arbitrator in the case. It had been claimed that the party appointed arbitrator was disqualified as he had repeatedly been appointed as arbitrator by the law firm representing the respondent.

The facts presented to the Svea Court of Appeal showed, among other things, that the party appointed arbitrator during the three-year period preceding the present appointment had been appointed by a party represented by counsels from the relevant law firm on two occasions. Further, the party appointed arbitrator had on two occasions been appointed as chairman of arbitral tribunals in which one of the arbitrators had been appointed by a party represented by counsel from the law firm.

Just as in the Ericsson case, the circumstances in the Korsnäs-case do not appear on the non-exhaustive list of circumstances which according to section eight of the Arbitration Act shall always be considered to be circumstances that may diminish confidence in an arbitrator's impartiality. Similar circumstances however appear on the orange list (article 3.3.7 – "The arbitrator has within the past three years received more than three appointments by the same counsel or the same law firm.") of the IBA Rules.

In its ruling the Svea Court of Appeal noted that: "[During] the three-year period preceding the appointment as arbitrator in the arbitration between Fortum and Korsnäs, [the party appointed arbitrator] has on two occasions been appointed as arbitrator by a party represented by counsels from [the law firm in question]. Since the application of the IBA Rules presumes that an arbitrator during the stated time period has received more than three appointments, ie, at least four appointments, from the same counsel or the same law firm, the necessary requirements are not met in order to consider [the party appointed arbitrator] as disqualified as arbitrator in the dispute between Fortum and Korsnäs on account of such rules."

In conclusion, the Svea Court of Appeal found that the circumstances of the case did not call into question the impartiality of the party appointed arbitrator and did not set aside the arbitral award challenged by the claimant. The decision has been appealed to the Supreme Court.

Observations on the cases

Based on the Ericsson and Korsnäs cases, the following observations can be made as to the role of the IBA Rules in Swedish arbitrations:

(i) The IBA Rules may be used as guidance in Swedish arbitrations;

(ii) The IBA Rules may be relied upon as a safe haven by arbitrators appointed in Swedish arbitrations; and

(iii) The application of the IBA Rules may differ between the SCC and public courts.

Observation (i)

Unsurprisingly the Ericsson and Korsnäs cases reaffirm the generally accepted view among Swedish practitioners that the IBA Rules may be used as guidance in Swedish arbitrations. It is however not clear what weight will be attached to the IBA Rules in Swedish arbitrations.

The Supreme Court's statement in the Ericsson case that "the examination of the case shall be conducted on the basis of the provisions of the Arbitration Act, in view of the similarities between the rules and the frequent occurrence of international aspects in these activities there may be reason to also look at the application of [the IBA Rules]", suggests that the Arbitration Act's provisions on conflicts of interest are not necessarily to be equated with the IBA Rules.

In other words, the fact that circumstances exist that under the IBA Rules may disqualify an arbitrator, does not necessarily mean that the arbitrator shall be disqualified on account of the provisions of the Arbitration Act. In connection to this it should be noted that the Supreme Court's reference to the occurrence of "international aspects" in arbitrations may indicate that the Supreme Court advocates a difference in the application of the IBA Rules between national and international arbitrations, which suggests that when applying the IBA Rules to national arbitrations, one shall take into consideration the international nature of the IBA Rules and adapt the application of the standards to the national arena (taking into consideration for example the limited size of the national arena compared to the international arena).

Observation (ii)

Though it is uncertain what weight shall be attached to the IBA Rules in Swedish arbitrations, the Korsnäs case suggests that the IBA Rules may be relied upon as a safe haven by arbitrators appointed in Swedish arbitrations.

In the Korsnäs case the Svea Court of Appeal, content with the fact that the circumstances of the case did not disqualify the arbitrator on account of the IBA Rules, did not even consider whether the circumstances could disqualify the arbitrator on account of the Arbitration Act (despite the Supreme Court's previous ruling in the Ericsson case that the provisions of the Arbitration Act are not to be equated with the IBA Rules). Whether this is due to an oversight or whether the same approach would apply in all instances is of course not possible to determine. However, due to the widespread use and acceptance of the IBA Rules, it is difficult to see that a court, other than in exceptional cases, would find that an arbitrator which would not be disqualified on account of the IBA Rules would be disqualified on account of the Arbitration Act.

Observation (iii)

In connection to the Ericsson case, the SCC rendered an advisory opinion to the Supreme Court in which it expressed its view on the circumstances of the case. The SCC's advisory opinion, compared with the reasoning of Supreme Court, indicates a possible difference between the SCC's and the Supreme Court's approach to the IBA Rules.

In its advisory opinion in the Ericsson case the SCC (with reference to the waivable red list as well as the orange list of the IBA Rules) concluded that if the SCC decides on a similar case applying the SCC Rules, it would most likely find that the arbitrator would be disqualified. In its opinion, the SCC further accounted for a number of unpublished decisions in which it, without exception, had found the arbitrator to be disqualified when the arbitrator's law firm had previously acted for one of the parties in an unrelated matter without the involvement of the arbitrator (article 3.1.4 on the orange list of the IBA Rules).

In its ruling in the Ericsson case the Supreme Court, however, disregarded the circumstances of the case appearing on the orange list of the IBA Rules and concluded that "[a]t least when, as in the present case, the relationship between the law firm and the client is commercially important to the law firm [...] circumstances exist which can call into question the impartiality of an arbitrator employed by a law firm when the client is a party in the arbitration", thereby limiting its ruling to the circumstances of the case which appear on the waivable red list of the IBA Rules (article 2.3.6 on the waivable red list of the IBA Rules).

The limited scope of the Supreme Court's ruling stands in contrast to the rather strict approach to circumstances which appear on the orange list of the IBA Rules expressed by the SCC in its advisory opinion and the decisions referred to therein. Had the Supreme Court shared the SCC's strict approach to such circumstances, there would have been no reason for the Supreme Court to exclude such circumstances from its ruling.

The limited scope of the Supreme Court's ruling accordingly suggests a difference between the SCC's and the Supreme Court's approach to the IBA Rules. Whereas the Supreme Court seems to advocate an approach where the Arbitration Act's provisions on conflicts of interest are not necessarily to be equated with the IBA Rules (see above), the SCC seems to advocate an approach where the IBA Rules to a large extent are determinative when deciding whether an arbitrator shall be disqualified or not. Whether this suggested difference is illusory or marks an unfortunate difference in the practice between the public courts and the SCC remains to be determined by future case law.

Author biography

Karl-Erik Danielsson

Gernandt & Danielsson Advokatbyrå KB

Karl-Erik Danielsson is a partner in the dispute resolution group of Gernandt & Danielsson. His litigation practice extends across a wide variety of domestic and international matters including complex commercial and corporate disputes. He has represented several of Scandinavia's largest banks and insurance companies and recently represented Skandia in the SKr3.2 billion dispute with Skandia Liv. He is frequently appointed as arbitrator in both domestic and international arbitral matters.

Email: karl-erik.danielsson@gda.se

Björn Tude

Gernandt & Danielsson Advokatbyrå KB

Björn Tude is a partner in the dispute resolution group of Gernandt & Danielsson. His litigation practice extends across a wide variety of domestic and international matters including complex commercial and corporate disputes. He has represented several of Scandinavia's largest banks and insurance companies. Together with Karl-Erik Danielsson, and others, he recently represented Skandia in the SKr3.2 billion dispute with Skandia Liv. He is frequently appointed as arbitrator in both domestic and international arbitral matters.

Email: bjorn.tude@gda.se