Recognition and enforcement of foreign arbitral awards
Following Sweden's ratification of the New York Convention without reservations in 1972, the convention's provisions were incorporated into the Swedish Arbitration Act. Sweden's judicial system has strived to uphold the intentions of the convention and the Supreme Court has repeatedly commented on the importance of facilitating enforcement of foreign awards in respect to the convention.(1)
Sweden's arbitration-friendly approach has led the Swedish courts to deny only rarely an application for the recognition and enforcement of a foreign award. It was therefore noted with interest when the Svea Court of Appeal denied enforcement of a foreign award due to matters of public policy in Finants Collect v Heino Kumpula.
Recognition and enforcement of foreign arbitral awards
Sections 54 and 55 of the Arbitration Act list the possible grounds for refusal of enforceability in Sweden. Together, they represent the grounds listed in Section 5 of the New York Convention.
Section 54 of the act contains the grounds in Section 5(1) of the convention, namely:
- lack of capacity or invalidity of arbitration agreement;
- violation of procedural due process;
- excess of mandate;
- improper composition of the arbitral tribunal or improper arbitral procedure; and
- non-binding awards.
These grounds for non-recognition or refusal of enforcement of an award must, according to Section 54, be invoked and proven by the party against whom enforcement of the award is sought. The burden of proof for the applicability of Section 54 is by law placed on the party against whom an award is invoked.
Section 55 of the act includes grounds for non-recognition and refusal of an award, which a court can consider without the grounds being invoked or proven by the party against whom enforcement is sought. These grounds are non-arbitrability and public policy, which are found in Article 5(2) of the convention.
In Finants Collect v Heino Kumpula the applicant Finants Collect sought enforcement in Sweden against Heino Kumpula (under the trading name ATB Tjänst) of a foreign award rendered on March 20 2014 in Riga, Latvia. According to the award, approximately Skr32 million was to be paid to Finants Collect in accordance with an agreement made only a couple of months before the award. In the enforcement proceedings in Sweden, Kumpula argued that the court should not allow the award to be enforced, since no arbitration agreement had been concluded. Kumpula further stated that he had only met the applicant once and that he never accepted any agreement with the applicant.
In its first decision, the Svea Court of Appeal stated that since Finants Collect had filed an original copy of the arbitration agreement and no circumstances had emerged to indicate that an arbitration agreement had not been concluded, Finants Collect would be granted enforcement of the award. The court saw no reason to apply Section 55 of the act.(2)
Kumpula appealed to the Supreme Court and invoked several circumstances that implied that he had never entered into any agreement with Finants Collect and that his signature on the agreement was forged. He also provided evidence that he had been in Thailand on the date that he had allegedly signed the agreement in Riga and that he had never been informed of or been allowed to participate in the arbitral proceedings.
Due to the circumstances that Kumpula described in his appeal, the Supreme Court commented on the applicability of Section 55(2) (ie, the ground for refusal of enforcement of an arbitral award based on public policy).
Initially, the court repeated that the general rule was that foreign awards were to be recognised and enforced. However, in situations where the enforcement of an award would violate public policy by being highly offensive, enforcement can be denied. The court further added that this is primarily an issue when elementary principles of substantive or procedural law have been put aside. Thus, the threshold for application of Section 55(2) is very high.
According to the Supreme Court, a court must consider the applicability of Section 55(2) even if it has not been invoked by the party against whom enforcement is sought. The court will judge the circumstances put forward by the parties and determine whether they merit application of Section 55(2). The court should not initiate an investigation, but if circumstances raised by the parties could fall under Section 55(2), the court will raise the question of public policy with the parties.
Further, the parties, and specifically the party applying for the enforcement of an award, must be given a specific opportunity to develop their view of these circumstances and investigate as they see fit. If after such an opportunity has been given to the parties, considerable doubt still exists regarding whether enforcement would violate public policy, the party applying for enforcement of the award must give reasonable explanations for the specific circumstances. If the party fails to do so, the court may deny enforceability.
The Supreme Court found that the facts of the case indicated that the invoked agreement might be fictitious and that Kumpula had alleged that the award was a result of procedural fraud. The enforcement of the award might therefore be a violation of Swedish public policy. However, Finants Collect had not been given any instruction to comment on these issues in the Svea Cort of Appeal, as the first-instance court. This is a necessary step for a court to take before applying Section 55(2). Therefore, the Supreme Court sent the case back to the Svea Court of Appeal.(3)
Accordingly, the Svea Court of Appeal ordered Finants Collect to comment on the circumstances put forward by Kumpula. The court informed Finants Collect that the circumstances of the arbitral award and its pronunciation were such that an enforcement might be a violation of public policy.
Despite the order issued by the court, and its explanation that enforcement could be refused due to matters of public policy, Finants Collect did not submit any comments. Therefore, the Svea Court of Appeal denied Finants Collect's application for enforcement of the award.(4)
Although recognition and enforcement of the foreign award were ultimately denied in this case, the steps set up by the Supreme Court regarding how a court should handle potential violations of public policy ensure enforcement-friendly practice in the courts. A clear ambition to uphold the New York Convention can be seen from both of the courts involved.
If the applicant had not refused to fully participate in the court procedure and if it could have explained the allegations made by its counter party, enforcement might have been allowed. The steps for courts to take in accordance with the Supreme Court's decision ensure that parties applying for enforcement of a foreign award in Sweden will not be surprised by the application of Section 55 of the Arbitration Act, and that they can rely on getting clear instructions from the courts to defend themselves on the matter before a decision is made.
For further information on this topic please contact Fredrik Norburg or Erik Wrisemo at Norburg & Scherp by telephone (+46 8 420 035 00) or by email ([email protected] or [email protected]). The Norburg & Scherp website can be accessed at www.norburgscherp.se.
(1) Supreme Court decisions Götaverken Arrendal AB v General National Maritime Transport Co, NJA 1979 page 527; and KB i Stockholm AB v Planavergne SA, NJA 2003 page 379.
(2) Svea Court of Appeal, September 10 2014, Finants Collect v Kumpula, Ö 4811-14.
(3) Supreme Court, June 17 2015, Finants Collect v Kumpula, Ö 4842-14.
(4) Svea Court of Appeal, October 31 2016, Finants Collect v Kumpula, Ö 7419-15.