Introduction
Obligations
Null and Void Awards
Incorrect Awards
Delayed Award
Conclusion
Introduction
The number of claims concerning the setting aside of arbitration awards in Finland has increased in recent times. These cases have brought the issue of an arbitrator's liability to the fore. Since arbitral awards are final, parties may somtimes attempt to obtain compensation from the arbitrators if they fail to achieve their goals through arbitration. However, this may defeat the purpose of arbitration.
Arbitrators must be protected against these claims so that they may continue to provide their service without fear of such litigation. However, the risk of liability should also be taken into account when deciding the arbitrators' fee.
Neither the Finnish Arbitration Act (October 23 1992) nor arbitration rules adopted by Finnish arbitral boards (eg, the rules of the Board of Arbitration of the Central Chamber of Commerce of Finland) contain specific provisions regarding an arbitrator's liability. Accordingly, the Damages Act (May 31 1974/412, as amended) and general contractual principles of liability are applicable. This update considers the issue of an arbitrator's liability in relation to a final award that is:
- null and void;
- set aside;
- incorrect in relation to substantive law; or
- delayed.
Obligations
The arbitrators must allow the parties sufficient opportunity to plead their case. During the proceedings they must observe the scope of their authority as the court of arbitration. An arbitrator must disclose any circumstances that might compromise his impartiality or independence. During the arbitration proceedings, arbitrators must act impartially and independently. Any time limits that are established (eg, by the rules of an arbitration board) must be observed. Arbitrators must also ensure that the proceedings end in an enforceable judgment. The standard expected of an arbitrator in giving the final award is that of a highly skilled professional in his field.
Null and Void Awards
An arbitral award which is null and void or set aside will be taken into consideration when assessing an arbitrator's liability. It may be regarded as a failure of the arbitrator's duty to ensure that the proceedings end in an enforceable judgment. However, an arbitrator is not liable if this outcome is due to circumstances outside his control or otherwise does not result from a failure on the arbitrator's part. If the arbitration tribunal consists of more than one arbitrator, the liability of each arbitrator must be assessed individually.
In certain circumstances an outcome which is null and void or set aside can be regarded as being under the control of the arbitrators and therefore may constitute grounds for their liability. Examples of these circumstances include the following:
- where an award is so ambiguous or incomplete that it is not clear what has been awarded;
- where an award is contrary to public policy; or
- where the arbitrator decides on a matter which cannot be settled by arbitration under Finnish law.
If an arbitral award is declared null and void or is set aside as a result of the arbitrator's negligence, the arbitrators may be liable for damages. Judges have a wide discretion in assessing negligence. However, the fact that a judge may have given a different ruling does not, in itself, constitute grounds for the arbitrators' negligence. Therefore, in order to establish negligence, the arbitrator's decision must have been incorrect or outside of his discretion. An example of this is the application of a law which is no longer in force.
Incorrect Awards
A party who considers the final award as incorrect in relation to substantive law has few grounds on which to argue that the award should be declared null and void or set aside. The award may be declared null and void if it is is contrary to Finnish public policy. However, the criteria for conflict with public policy are not easily fulfilled. One reason for this is that reaching an arbitral award quickly is considered to be more important than issuing an award which is correct in relation to substantive law in every aspect.
An arbitrator will not be liable for damages where the award itself is upheld, even if it is incorrect in relation to substantive law.
Delayed Awards
One of the arbitrator's principal duties is to deliver the final award within a prescribed period. This time limit can be established by the rules of an arbitration board or specified within a contractual arbitration clause. An arbitrator's nomination made by the Board of Arbitration of the Central Chamber of Commerce remains in force for one year and expires thereafter unless the time limit is extended. Arbitrators may be liable for damages if an arbitral award is delayed.
Failure to make the final award within a prescribed time limit does not necessarily constitute grounds for negligence. In some cases, reasons that are outside the arbitrators' control cause the delay. Where an arbitration tribunal consists of more than one arbitrator, the possible liability of each arbitrator must be assessed individually.
Wasted costs incurred as a result of exceeding prescribed time limits (eg, when the arbitration tribunal no longer has competence and the parties do not agree to the continuation of the proceedings) can be regarded as damages. While it is possible that an arbitrator may be liable for damages arising from an award which exceeds the time limit, the scope of this liability is not wide. However, it may not be possible to limit this liability.
Conclusion
In certain cases, an arbitrator will be liable for damages. However, the liability will only result in damages if the arbitrator's actions clearly constitute wilful misconduct or gross negligence. A lawyer who intends to act as an arbitrator may enter into a separate contract with the parties on the limitation of his risk. The liability that might arise from arbitral proceedings may in some cases be included within a lawyer's liability insurance.
For further information on this topic please contact Jouko Huhtala at Castren & Snellman by telephone (+358 9 2285 8363) or by fax (+358 9 655 919) or by e-mail ([email protected]).
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