Supreme Court strengthens impression that arbitral awards usually stand despite tribunal's procedural errors
The Swedish courts have no jurisdiction to review or alter an arbitral award. Therefore, an award cannot be challenged due to a tribunal’s wrongful application of material law or its incorrect assessment of the evidence at hand.
The Arbitration Act aims to protect the finality of awards and consequently the only applicable way to challenge an award as if a challenge is based on formal or procedural grounds.
Sections 33 and 34 of Arbitration Act
Sections 33 and 34 of the Arbitration Act set out the provisions for the invalidation or annulment of awards, except those relating to the termination of an award without a ruling based on the material at hand (eg, if a tribunal has found that it lacks jurisdiction).
Regarding the formal grounds for invalidation under Section 33, an award is invalid if it:
- includes a decision on an issue that may not be decided by a tribunal according to Swedish law (eg, disputes that affect third-party interests such as tax or bankruptcy issues);
- violates Swedish public order; or
- does not live up to the mandatory requirements regulated under Section 31 of the Arbitration Act (ie, that an award must be written and signed in a certain manner).
Regarding the procedural grounds under Section 34, with regard to setting aside part of or an entire award, the courts may set aside an award if the challenging party can establish that:
- the award is not covered by an arbitration agreement between the parties;
- the award was rendered after the given time, as established by the parties;
- the tribunal exceeded its mandate and this likely affected the case’s outcome;
- the arbitration should not have been conducted in Sweden;
- the appointment of the tribunal violated the parties’ agreement or the Arbitration Act;
- a member of the tribunal was biased or lacked qualifications, as agreed between the parties; or
- a procedural error occurred and this likely affected the case’s outcome.
There is limited precedent where courts have found that provisions in the aforementioned sections are applicable, suggesting that there is a threshold to overcome to successfully challenge an award.
In order to challenge an award based on one or several of the abovementioned grounds, the challenging party must consider both the procedural and deadline provisions in the Arbitration Act. When challenges are based on Section 34 of the act, a challenge must be initiated within two months from the date that the party received the award. Further, challenges regarding both Sections 33 and 34 must be made directly to a court of appeal that has the jurisdiction over the place in which the arbitration is seated. In practice, this usually means that the Svea Court of Appeal is the first court to review a challenge because it has jurisdiction over Stockholm, where most Swedish arbitrations take place.
Challenges to appeals of court of appeal verdicts are heard by the Supreme Court. For such appeals to be heard, the Supreme Court must grant leave to a part or the whole of the appeal, which is quite uncommon since the Supreme Court generally grants leave to an appeal only if it is considered to be important as a matter of precedent. However, in early 2019 the Supreme Court issued two decisions after previously granting leave. The decisions (NJA 2019 s 171 and NJA 2019 s 382) concerned challenges of awards based on procedural errors and whether such errors could result in an award’s annulment.
Case NJA 2019 s 171
In this case about construction work for mining shafts in Turkmenistan, the questions related, among other things, to whether the tribunal had tried a claim not covered by an arbitration agreement or exceeded its powers by not reviewing a contentious circumstance. The Supreme Court initially concluded that the provisions regarding the annulment of an award exist to balance parties’ interests to obtain a swift and final verdict and the ability for a party to object to procedural errors of essential importance.
The Supreme Court found that even though the dispute related to amendments to a contract which stipulated that disputes should be resolved in a Belarusian court, the contractual commitments had been carried out within the contractual framework between the parties established under the original contract. Further, the court concluded that the jurisdiction clauses in the amendments granted a right, not an obligation, to resolve the dispute in Belarus. Therefore, the contract’s jurisdiction clause that disputes should be resolved by a Swedish arbitration tribunal was determined to be in accordance with the parties’ joint intent.
The Supreme Court also found that even though the tribunal had committed a procedural error whiledetermining that a certain interest claim was non-contentious, it could not be considered of essential importance and therefore dismissed the challenging party’s claim.
Case NJA 2019 s 382
In this case, the tribunal issued a procedural order of its position regarding the parties’ intentions concerning a clause in a licensing contract. The tribunal asserted that it would not deviate from this position without informing the parties. Nevertheless, the tribunal deviated from this position in its award rendered two years after the procedural order.
The Supreme Court came to the same conclusion regarding the Arbitration Act’s aim to protect the fnality of awards, adding that:
- the provisions regarding annulment should be used restrictively;
- and the threshold for presuming an error’s influence on a case’s outcome is higher in cases regarding challenges of awards compared with procedural errors in litigations under the Code of Judicial Procedure.
Despite the restrictive applicability, the Supreme Court found that such procedural errors are likely to affect the outcome of an award, as important legal principles have been violated.
In this case, the Supreme Court determined that the challenging party was deprived of its opportunity to defend the claim regarding the licensing contract clause as the challenging party, because of the procedural order, was under the justified assumption that the clause wound not be subject to the tribunal’s review. Therefore, the Supreme Court found that the award should be partially annulled.
Even though the Supreme Court in Case NJA 2019 s 382 partially annulled the award, recent case law confirms that Swedish courts will uphold the general principle that awards finalise a dispute between parties. In order to successfully challenge an award, not only must a challenging party prove that the procedural error likely affected the outcome of the award, but also that the error must be considered of essential importance.
This article was first published on ILO – International Law Office.
For further information on this topic please contact Maria Kosteska Fägerquist or Christofer Wilpart at Wistrand by telephone (+46 31 771 21 00) or email (firstname.lastname@example.org or email@example.com).