Introduction

Most franchise agreements in Sweden contain an arbitration clause. In 1992 the Supreme Court ruled (NJA 1992, Page 290) that an arbitration clause in a franchise agreement is reasonable. The existence of an arbitration clause means that a lawsuit filed at a district court will be dismissed if the defendant in his or her first response to the court refers to the arbitration clause and argues that the clause prevents the court from trying the claim in question. Under procedural law, district courts are not the competent body to solve a dispute involving an arbitration clause. Thus, a district court will meet a defendant's argument and dismiss the lawsuit, and the claimant will then have to initiate an arbitral proceeding.

Decision

A recent appeal court case (Hovrätten för Övre Norrland, Ö 771-16) has bearing on the fact that an arbitration clause deprives a district court of the power to rule over a dispute arising from an agreement containing an arbitration clause. The parties had entered into a supply agreement and disputed whether a timber delivery was correct under the agreement which contained an arbitration clause. Before the dispute was handed over to the arbitral tribunal, the parties agreed on an out-of-court settlement agreement regarding payment from the supplier to the buyer to cover the cost of the faulty timber. When the buyer did not receive the agreed payment, it filed a lawsuit at the district court against the supplier claiming the payment of the settlement sum based on the settlement agreement. The supplier replied to the district court by arguing that the lawsuit should be dismissed due to the arbitration clause in the supply agreement. The buyer's counterargument was that the settlement agreement was a new agreement, which consequently stood alone and did not fall under the arbitration clause of the supply agreement. The court concluded that the parties had not discussed the arbitration clause when negotiating the settlement agreement, and found that there were no other explicit references in the said agreement to the arbitration clause in the supply agreement; thus it ruled against dismissal. The court was found to be competent to try the parties' dispute arising from the settlement agreement.

Comment

When entering into a settlement agreement a franchisor must ensure that the arbitration clause in the franchise agreement explicitly covers the settlement agreement. The easiest way to do this is to put an arbitration clause into the settlement agreement.

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For further information please contact Dan-Michael Sagell at Sagell and Co by telephone (+46 8 611 55 42) or email (dms@saglaw.se). The Sagell and Co website can be accessed at www.saglaw.se.