Chapter 18 of the Code of Judicial Procedure regulates which litigation costs may be recoverable from the other party and how the costs will be distributed. Section 7 of Chapter 18 provides that a court may impose, sua sponte or on motion of a party, joint and several liability on a counsel if and to the extent that the counsel has been negligent. The counsel is then ordered to compensate the counterparty's litigation costs together with their client. This liability concerns only the additional costs that the counterparty incurred due to the negligence.
Chapter 18 also applies in challenge proceedings regarding arbitral awards. An action against an arbitral award will be considered by the court of appeal within the jurisdiction where the arbitral proceedings were held. Since most arbitrations in Sweden take place in Stockholm, the Svea Court of Appeal is normally the exclusive forum for challenges of arbitral awards.
In recent years, the Svea Court of Appeal has delivered several judgments regarding counsel's personal liability for their counterparty's litigation costs in challenge proceedings. Further, the Supreme Court recently clarified that a counsel or representative can be entitled to compensation for costs incurred due to a counterparty's request that the counsel or representative be held jointly liable for the such costs. This article addresses these judgments.
In ÖFAB, Östergötlands Fastigheter AB v Gaftare AB(1) the Svea Court of Appeal ruled, on the motion of Gaftare AB, that ÖFAB, Östergötlands Fastigheter AB's counsel was jointly liable for Gaftare AB's litigation costs together with his client since certain claims regarding the arbitrators' bias were neither specified nor supported by any evidence.
In Thomas Lundin v Telefonaktiebolaget LM Ericsson(2) the Svea Court of Appeal held, on the request of Telefonaktiebolaget LM Ericsson, Thomas Lundin's counsel jointly and severally liable for Telefonaktiebolaget LM Ericsson's litigation costs together with his client. The counsel had invoked oral evidence which was irrelevant to the challenge and a new challenge ground, though this was time barred. The court considered that the counsel, because of his expertise in arbitration law, should have realised that these actions were unjustified.
In Thobias Oscarsson in bankruptcy v John Andén(3) the Svea Court of Appeal stated that an ill-founded cause of action does not mean that a party's counsel is personally liable for the opposing party's litigation costs. However, since Thobias Oscarsson's counsel had been negligent when alleging that the arbitral award was invalid because of the lack of an arbitration agreement and he had acted unprofessionally in other respects, he was found liable.
In Cypress Oilfield Holdings Limited v China Petrochemical International Company Limited(4) the Svea Court of Appeal found that Cypress Oilfield Holdings Limited's counsel had been negligent and was therefore jointly and severally liable for China Petrochemical International Company Limited's litigation costs. The reasons for this decision were that:
- counsel had radically modified the grounds for challenge in a late stage in the proceedings;
- after the hearing had begun, counsel had filed a final and specified statement of evidence;
- the claims regarding public policy were unfounded; and
- the court had to take several measures to organise the proceedings in order to guide Cypress Oilfield Holdings Limited in relation to its cause of action, statement of facts and taking of evidence.
In the most recent case, Refaat el-Sayed v Aktiebolaget Industrivärden,(5) the Svea Court of Appeal found Refaat el Sayed's counsel jointly and severally liable for Aktiebolaget Industrivärden's litigation costs, on the request of Aktiebolaget Industrivärden. The court noted in particular that el-Sayed's counsel had based the challenge on allegations which he must have known were untrue and unfounded since he had acted as counsel in the arbitration. The court also pointed out that the challenge was based on extensive and strained reasonings and lacked legal substance and logic.
The Svea Court of Appeal has also denied requests of personal liability for counsel in several other cases.(6) The reasoning on this issue is limited in these judgments, but in some the court expressed that merely a weakly substantiated cause of action or a limitation of the cause of action made late in the proceedings is insufficient to constitute negligence and will not lead to counsel's liability for costs.
None of the abovementioned cases have been reviewed by the Supreme Court.
In Adriana and Antonia Krzymowska v Lars-Åke Nässlander(7) the Supreme Court clarified that a counsel or a representative, with an analogous application of Chapter 18 of the Code of Judicial Procedure, can be entitled to compensation for costs incurred due to the counterparty's request that the counsel be held jointly liable for the litigation costs together with their client. However, in cases where the court raises the question of liability sua sponte, the counsel or representative cannot have their costs reimbursed since they are not considered to be parties.
Arguably, it appears to be more common for a counsel representing the claimant in challenge proceedings to be held liable for the counterparty's litigation costs than counsel in other types of case. There may be several reasons for this.
Often, the counsel representing the challenging party will also have acted as counsel in the arbitral proceedings and thus have personal and direct knowledge of the facts of the dispute (ie, what occurred during the arbitral proceedings). Therefore, a court may be less forgiving when a counsel makes an inaccurate statement of facts in challenge proceedings.
Further, the provisions on challenges are narrow and the courts may react negatively against challenges that appear far-fetched. The courts may take the view that some challenges are made with the secondary purpose of obstructing or delaying enforcement of the award in a jurisdiction with a less arbitration-friendly regime than Sweden. As regards international arbitration, foreign parties and counsel are often involved in the challenge proceedings and may lack deeper knowledge of the narrow provisions for challenging an award under Swedish law, resulting in an overly broad case. For example, too much focus can be put on the merits of the underlying dispute rather than on the potential procedural errors relevant for the challenge.
Another possible reason is that defendants more frequently make motions for counsel's personal liability in challenge cases than in other cases, since the risk of being unable to enforce the compensation for the legal costs may be higher. Enforcement of a Swedish judgment, including a decision on the litigation costs against a party outside the European Union, may be difficult, whereas enforcing a decision on personal liability against a Swedish counsel is usually simple. However, Adriana and Antonia Krzymowska v Lars-Åke Nässlander shows that it is not risk free to claim personal liability.
Counsel representing parties challenging arbitral awards should be aware of this risk and are well advised to avoid potential grounds for personal liability (eg, manifestly ill-founded arguments, unnecessary evidence, actions and requests and late adjustments of the case).
For further information on this topic please contact Fredrik Norburg or Catarina Rivero Lira at Norburg & Scherp by telephone (+46 8 420 035 00) or email (firstname.lastname@example.org or email@example.com). The Norburg & Scherp website can be accessed at www.norburgscherp.se.
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