In a recent judgment the Svea Court of Appeal determined that an arbitral award should not be set aside on the grounds of the disputed substantive agreement not being arbitrable under the Arbitration Act due to (allegedly) violating the then-mandatory Soviet law and being punishable under Soviet criminal law.(1) The court took an arbitration-friendly approach to arbitrability in international arbitration.
In 1990 a joint venture company borrowed money from a large Swedish bank (now called Nordea) to build the first golf course in Moscow. The loan agreement contained an arbitration clause providing for arbitration under the Arbitration Rules of the Stockholm Chamber of Commerce (SCC). The arbitration agreement did not specify the seat of arbitration, but the SCC determined that the seat of the arbitration proceedings should be in Stockholm, Sweden, since the law of the substantive loan agreement was Swedish.
In 1998 Nordea commenced arbitration against the debtor, Moscow City Golf Club OOO (MCG), requesting payment under the loan agreement. MCG disputed the claim based on, among other things, an allegation that the loan agreement violated Soviet mandatory exchange laws at the time of the agreement; it also claimed that the dispute was not arbitrable. In the arbitral award the arbitrator found, among other things, that MCG had not proven that the loan agreement violated exchange laws, and Nordea's request for relief was successful.
MCG challenged the award in the Svea Court of Appeal and claimed, among other things, that the dispute concerned a matter that was subject to mandatory and penal law, and therefore not a matter on which the parties were capable of reaching settlement. Under the Swedish Arbitration Act, only disputes concerning matters in respect of which the parties may reach settlement are arbitrable. Therefore, MCG claimed that the dispute was not arbitrable. It also claimed that the arbitration agreement was invalid since it violated Soviet law.
The Svea Court of Appeal noted that Swedish law should govern the arbitration agreement since the arbitration took place in Stockholm (which follows from Section 48 of the Arbitration Act). Hence, the issue was whether the subject matter of the dispute was arbitrable under Swedish law.
The court noted that just because there are mandatory provisions in a certain area of law, it does not automatically mean that disputes within that area are not arbitrable. The court concluded that if the subject matter concerned economic-political regulation in a foreign state, there is no reason to let the mandatory rules affect the possibility of settling the matter in Sweden, and consequently the arbitrability under Swedish law. The court explicitly recognised an international trend to accept the resolution of an international dispute by arbitration even if a similar national dispute were not be arbitrable.
The court assessed the issue of arbitrability with the starting point that the relevant time for the assessment was when the loan agreement was concluded (ie, in 1990). At that time, no Swedish law restrained a Swedish party from entering into a loan agreement with a foreign debtor. The exchange laws did not concern the debt relationship as such, only the forms for cross-border payments. Hence, the parties were capable of reaching settlement concerning the debt. Since this was the subject matter of the arbitration, the court found that the dispute was arbitrable.
The judgment of the Svea Court of Appeal makes clear that the relevant time for assessing whether the dispute was arbitrable is the time when the agreement was concluded. The judgment is also interesting in the sense that it includes clear arbitration-friendly statements with respect to international arbitration, expressing a presumption in favour of arbitrability in international arbitration.
MCG has appealed the judgment to the Supreme Court.
For further information on this topic please contact Björn Tude or Pontus Scherp at Gernandt & Danielsson Advokatbyrå by telephone (+46 8 670 66 00), fax (+46 8 662 61 01) or email ([email protected] or [email protected]).