Björn Tude Pontus Scherp March 31 2011 Supreme Court rules on due notification for respondents Gernandt & Danielsson Advokatbyrå | Arbitration & ADR - Sweden Björn Tude, Pontus Scherp Arbitration & ADR IntroductionFactsAppeal court decisionSupreme Court decisionCommentIntroductionIn a decision from April 2010, the Supreme Court had cause to consider what is required for a foreign arbitral award to be recognised and enforced in Sweden. In this case, the Supreme Court had to apply the Swedish Arbitration Act (SFS 1999:116) which, with respect to recognition and enforcement, goes back to the New York Convention of 1958, specifically Article V. The specific question which the Supreme Court was required to address was whether the respondents had been duly notified of the arbitration proceedings against them.FactsIn September 1996 Russian company Lenmorniiproekt and Swedish company Arne Larsson & Partner Leasing AB (ALPL) entered into an agreement according to which Lenmornii was to carry out project planning work regarding an oil terminal in the vicinity of the city of Primorsk. The parties subsequently entered into two supplementary agreements. According to the agreement, disputes were to be resolved by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation.ALPL did not pay for the work which Lenmornii carried out according to the agreement. Therefore, on September 18 2003, Lenmornii requested arbitration proceedings in the International Commercial Arbitration Court. In the request for arbitration, Lenmornii stated that ALPL's address was Strandvägen 5B, SE-114 51 Stockholm, which was the address that had been stated in the parties' agreement from 1996 and in both the supplementary agreements.However, as early as November 2002, ALPL had moved to a new address and provided notice of the change of address to the Swedish Companies Registration Office. The office registered ALPL's new address in December 2002 and, in accordance with the Companies Act (2005:551), published the change of address in the Official Gazette. ALPL had not notified Lenmornii separately of the change of address.In October 2003, the International Commercial Arbitration Court sent the request for arbitration to ALPL. According to the arbitral award, the request was served on ALPL on October 21 2003 by being handed over by the courier company UPS to a person who signed the parcel "LAVAICA". As is set forth in the arbitral award, the arbitral tribunal sent a notice regarding the hearing on March 3 2004 to ALPL at its old address. The notice was returned with the notation "No addressee at the stated address". It was noted in the arbitral award that no representative of ALPL was present at the hearing on March 3 and that ALPL never filed any pleading in the case.At the hearing before the arbitral tribunal, Lenmornii moved that the address for ALPL in the agreement be deemed as the most recent known address for ALPL's place of business and that the hearing should be held in ALPL's absence.The arbitral tribunal found that ALPL's address stated in the agreement constituted the most recent known address for ALPL's place of residence, and therefore concluded that it was possible to adjudicate the dispute in the absence of ALPL.Through an arbitral award issued on April 27 2004, ALPL was ordered, among other things, to make a payment of approximately $160,000.In 2007, Lenmornii applied to the Svea Court of Appeal for recognition of the arbitral award and a declaration of its enforceability in Sweden. ALPL contested the application. ALPL's primary grounds for contesting the application was that the company was unaware of the arbitration proceedings before Lenmornii applied for enforcement of the award in the Svea Court of Appeal. Lenmornii argued primarily that the proceedings had been conducted correctly according to Russian law.Appeal court decisionThe Svea Court of Appeal found that it had not been proven in the case who had signed for the parcel containing the request for arbitration or who "LAVAICA" was. Therefore, the it found that ALPL had proven that no service of process of the request for arbitration had taken place and that ALPL therefore lacked knowledge of the proceedings. Lenmornii's application was therefore dismissed. The Svea Court of Appeal's decision was appealed to the Supreme Court which, after granting leave to appeal, accepted the case for adjudication.Supreme Court decisionThe Supreme Court issued a decision in the case (Ö 13-09) on April 16 2010. It found that, pursuant to Section 53 of the Arbitration Act, a foreign award which is based on a written arbitration agreement shall, according to the main rule, be recognised and enforced in Sweden. However, according to Section 54(2) of the Arbitration Act, this does not apply if the party against whom the arbitral award is invoked (in this case, ALPL) "proves" that it had not been "duly": notified of the appointment of an arbitrator; notified of the arbitration proceedings; or for some other reason was not capable of presenting its case. Thus, in this case, ALPL was required to prove that it had not been "duly" notified. In Section 3 of the reasons for its judgment the Supreme Court stated that the Arbitration Act in this respect goes back to the New York Convention of 1958, and specifically Article V. Taking into consideration the legislature's comments in conjunction with the implementation of the New York Convention (Govt Bill 1971:131, pages 37 and 39), the court was of the opinion that the evidentiary requirement could not be made particularly stringent since that which must be proved differs from what is customary through a party (in this case ALPL) being required to prove that the opposing party has failed to fulfil its duty of notice.In addition, the Supreme Court held that the arbitral tribunal admittedly had found that ALPL had received the request for arbitration through it being sent to the old address and that ALPL had that address according to both the request for arbitration proceedings as well as the parties' agreement. In addition, the Supreme Court held that the arbitral tribunal also found support for the receipt in a notice of service which was introduced in the dispute, but that a subpoena which was sent to the same address had been returned with a notation that the addressee was not found there. The Supreme Court found it proven that ALPL had vacated the premises on Strandvägen before the arbitration proceedings were requested. It also found it proven that both the request for arbitration as well as other documentation in the arbitration proceedings had not been provided to any authorised representative of ALPL and that ALPL "also in no other way was reached by the documents" (see Section 5 of the reasons for the judgment).After these statements, the Supreme Court addressed Lenmornii's argument that ALPL must "be deemed to have received notice of the arbitral proceedings". In support of this argument, Lenmornii argued, among other things, that ALPL informed neither Lenmornii nor the arbitral tribunal of its change of address. Before the Supreme Court addressed this issue, a statement of principal was made, namely that:"the provisions regarding recognition and enforcement of arbitral awards set forth in the Arbitration Act and in the New York Convention should be interpreted in light of the general goal which the Convention expresses to facilitate enforcement."This was an expression of the notion that the Supreme Court intended to carry out an interpretation of the provision that conforms with the convention (see the court's reasoning in Section 7).Thereafter, the Supreme Court addressed what was to be understood by the notion that notice must be "duly provided" and noted, at the same time, that no detailed guidance was provided in the New York Convention. The court thereafter made the following statement on principle in Section 8 of its reasoning:"However, stringent requirements must be imposed regarding notice which applies to the very fundamental fact that arbitral proceedings are to be commenced (the request for arbitration). From a due process perspective, it is not acceptable that an arbitral award be recognised and enforced against a party who has not been notified of the arbitral proceedings, or even been able to know that they are pending. With respect to the above-stated notice, as a matter of principle a requirement should therefore be maintained that such notice must have reached the opposing party."The Supreme Court thereafter dismissed Lenmornii's allegation that ALPL must be deemed to have received the request for arbitration on the grounds that Lenmornii or the arbitral tribunal was not informed of the change of address. The court was of the opinion that the claim "has no bearing on the circumstance that the opposing party was unaware that the arbitral proceedings had commenced".In Section 9 of its reasoning, the Supreme Court stated that a bar to recognition and enforcement according to Section 54(2) of the Arbitration Act is normally deemed to exist in any of the following situations: if it is not apparent from the arbitral award or otherwise that the request for arbitration has reached the opposing party; or if, in a matter regarding the recognition and enforcement of an arbitral award, evidence is produced "which raises considerable doubt" as to whether the opposing party received the notice; thus it is sufficient to prove considerable doubt in order for a bar to recognition and enforcement to arise. According to the act's wording, any party against whom enforcement is sought must "prove" that one of the stated obstacles exists. According to its normal wording, this evidentiary requirement means that there must be a high degree of probability. The evidentiary requirement which the Supreme Court established is, in part, supported by statements in the legislative history, the exact opposite. Not much in particular is required before there is "considerable doubt". Even if this can appear to be a generous rule for the respondents, the Supreme Court stated that it is another matter if it is apparent that the opposing party nonetheless was able to plead its case in the arbitral proceedings. Thus, the rule established by the Supreme Court was well balanced.CommentThere are several conclusions which can be drawn from this case. First, a party cannot rely on the contractual provisions which prescribe when a party is deemed to have received a document. Such provisions do not obtain the effect that was certainly sought by the parties with regard to recognition and enforcement. It cannot be sufficiently emphasised how important it is to verify the opposing party's address and that the opposing party has actually received the request for arbitration. It is primarily in the parties' interests to verify the identity of the person who receives the notice of a request for arbitration in order to ensure that an arbitration award can be recognised and enforced. For the same reason, it is also in the interest of the arbitral tribunal to verify carefully who has received the request for arbitration. In addition, the arbitral tribunal must ensure that the arbitral award states that the counterparty has received the notice of a request for arbitration. The Supreme Court's decision may initially appear to be overly formalistic. However, the requirements imposed are not particularly far-reaching in the sense that they are difficult to fulfil, either for the arbitral tribunal or for the parties. The decision gives consideration to the due process requirements which the parties have every right to demand, without establishing rules that in any real sense obstruct the general desire to facilitate enforcement, as expressed in the New York Convention.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]).