In June 2018 the Supreme Court rendered a decision concerning an application for enforcement of a foreign arbitral award.(1) The decision clarifies whether a party that is passive in arbitral proceedings forfeits its right to invoke circumstances which were known to the party in the arbitral proceedings as grounds for non-enforcement of a foreign arbitral award.
The Swedish company Adelina Gross AB entered into a contract in 2010 with the Serbian company Promlinus DOO Prokuplje (previously Hammeum International), under which Adelina was given an exclusive right to sell Promlinus's products on the Scandinavian market.
In 2014 Promlinus initiated arbitration against Adelina at the Chamber of Commerce and Industry of Serbia in Belgrade due to a dispute arising out of the contract. Adelina submitted neither a statement of defence nor a written submission regarding the arbitral tribunal's appointment, despite an order from the Court of Arbitration. Subsequently, a sole arbitrator was appointed. Neither of the parties raised any objections regarding the appointment; thus, the arbitrator considered himself to have jurisdiction over the dispute. During the arbitral proceedings, Adelina did not:
- make any submissions;
- contact the arbitrator or the other party; or
- attend the hearing.
The sole arbitrator rendered his final award in 2015, ordering Adelina to pay compensation to Promlinus.
In 2015 Promlinus applied to the Svea Court of Appeal in Stockholm for the arbitration award to be declared enforceable in Sweden. Adelina objected to the enforcement, arguing that the Serbian arbitral tribunal had lacked jurisdiction. The court found that Adelina had forfeited its right to invoke such an objection, as it had failed to raise the objection during the arbitral proceeding. As a result, the Serbian arbitral award was declared enforceable in Sweden.
Adelina appealed the decision to the Supreme Court. The Supreme Court stressed that, in accordance with Section 53 of the Arbitration Act, arbitral awards are final and binding and enforcement should be refused only in exceptional circumstances. In accordance with Section 54, Item 4 of the Arbitration Act (which largely accords with the corresponding provision in Article V(1) of the New York Convention),(2) a foreign award will not be recognised and enforced in Sweden where the party against which the award is invoked proves that the composition of the arbitral tribunal, or the arbitral procedure, contravened:
- the agreement of the parties; or
- failing such agreement, the law of the country where the arbitration took place.
The Supreme Court further pointed out that according to case law, Section 54 of the Arbitration Act should be interpreted in light of:
- the objective of the New York Convention to facilitate enforcement;
- international case law; and
- the principles established in the United Nations Commission on International Trade Law (UNCITRAL) Model Law.(3)
The Supreme Court found that neither the Arbitration Act nor the New York Convention regulates the effects of a party's passivity during arbitration proceedings. However, the court held that the legal literature has considered that the New York Convention provides for the principle that a party cannot challenge the enforcement of a foreign arbitral award invoking circumstances that the party knew of, but made no objections to, in the arbitral proceedings. The Supreme Court also referred to, among other things, Section 34 of the Arbitration Act, under which a party can be barred from invoking circumstances as grounds to challenge an arbitral award due to a party being passive during the arbitral proceedings.
The Supreme Court concluded, with reference to international case law regarding the application of Article V(1) of the New York Convention, that a party may forfeit its right to invoke circumstances that it believes constitute grounds for non-enforcement of a foreign arbitral award. The Supreme Court concluded that during the proceedings, Adelina had not raised any objections against the arbitral tribunal or the proceedings; therefore, it could not challenge enforcement of the award relying on the arbitral tribunal's lack of jurisdiction.
This decision confirms the main rule that a foreign award that is based on an arbitration agreement will be recognised and enforced in Sweden. The decision further clarifies that a party may be barred from invoking a defence under Section 54 of the Arbitration Act, even if such a rule is not explicitly stated in the act. Before this decision, it had – according to the legal literature – been unclear whether such a passivity rule existed in relation to enforcement.(4)
The New York Convention is not incorporated in Sweden by reference, but rather transposed into Swedish law through the Arbitration Act. Notably, Article V of the convention appears to be more flexible than the corresponding provision in the Arbitration Act. According to the wording of Section 54 of the act, recognition and enforcement of a foreign award "shall" be refused if grounds for refusal exists. This differs to the wording of the New York Convention and the UNCITRAL Model Law, which use the word "may". However, legal scholars have stated that when interpreting Section 54 of the Arbitration Act, great attention should be paid to Article V of the New York Convention, as well as the corresponding international case law.(5) The Supreme Court has previously stressed the importance of respecting the intentions underlying the New York Convention.(6)
Section 54, Item 4 of the Arbitration Act accords in full with Article V(1)(d) of the New York Convention. There seems to be a common understanding that a party may forfeit its right to raise the defence to enforcement under Article V(1)(d) due to passivity during the arbitral proceedings.(7) Several courts in deferent jurisdictions – such as Germany, China, Italy, England, Greece and the United Sates – have confirmed this principle when applying the provision in the article.(8) This decision is in line with that perspective. The Supreme Court's decision displays a clear ambition to uphold the New York Convention and related case law. This approach, as stated by the Supreme Court, is also in line with Section 34(2) of the Arbitration Act, which states that a party is deemed to have waived grounds for challenging an arbitral award by participating in the arbitral proceedings without raising objections to errors, which may constitute a ground for challenging the award.
For further information on this topic please contact Ulrika Anderson at Norburg & Scherp by telephone (+46 8 420 035 00) or by email (firstname.lastname@example.org). The Norburg & Scherp website can be accessed at www.norburgscherp.se.
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