Sweden

22 October 2018

Fredrik Lundblom, David Henningsson

Sweden has a long-standing tradition of resolving civil disputes through arbitration. In 1734, Sweden passed a law that allowed parties to resolve certain forms of disputes by means of arbitration, and in the late 1800s Sweden adopted its first comprehensive arbitration act. Moreover, over the course of the 20th century, Sweden positioned itself as a popular venue for international arbitration. During the Cold War, parties from the United States (and other Western countries), the Soviet Union and China regarded Sweden as a neutral venue and the Arbitration Institute of the Stockholm Chamber of Commerce (the SCC Institute) as a neutral administrator of disputes. Therefore, they frequently included arbitration clauses in their agreements that stipulated that the seat of arbitration should be Stockholm, Sweden, and that the arbitration should be administrated by the SCC Institute. Since then, the SCC Institute’s popularity has anything but declined.

During the past 10 years, the SCC has had 170–216 new cases every year, of which around half have been international arbitrations. In 2017, a year during which the SCC celebrated its 100th anniversary, the SCC had its third-highest caseload since it was founded. Of the 200 cases on its docket last year, around half were international and the parties came from 40 different countries.[1] As regards the administration of investment treaty disputes, the SCC Institute ranks as the second largest institution in the world.[2] In short, Sweden continues to be one of the world-leading forums for international arbitration.

Several factors may explain why Sweden has established itself as one of the most popular venues for international arbitration. Sweden’s reputation as a relatively independent state as far as world affairs is concerned continues to be cited as one main reason. In addition, it is often recognised that the Swedish justice system demonstrates a high degree of efficiency and respect for the rule of law. Further, Sweden has promoted itself internationally by being an active participant when rules and standards pertaining to international arbitration have been adopted.

Notably, the Swedish government has recently taken steps to maintain and develop Sweden’s position as a hub for international arbitration. On 30 August 2018, the government introduced a new bill titled ‘A modernisation of the Arbitration Act’. The bill contains several proposals intended to make the law even more easily accessible to Swedish and foreign parties and lawyers alike, and to ensure that Sweden remains a popular venue for inter­national arbitration. The government has proposed that the amended law shall enter into force on 1 March 2019.

Below, we will provide a brief overview of some of the key provisions set out in the current Arbitration Act. Thereafter, we will describe some of the amendments of this law proposed by the Swedish government in the new bill. In the following section we will provide a brief introduction to the SCC Rules and to SCC arbitrations. In the final section, we will touch on a couple of recent court decisions related to arbitration in Sweden.

Brief overview of the Swedish Arbitration Act

Arbitrability

It follows from the Swedish Arbitration Act that any dispute that concerns matters in respect of which the parties may reach a settle­ment may, by agreement, be referred to one or several arbitrators for resolution. Such an arbitration agreement may concern future disputes concerning a legal relationship specified in the agreement (however, the legal relationship as such must exist at the time when the arbitration agreement is concluded). The dispute may concern the existence of a particular legal fact. The parties may also ask the arbitrators to fill out gaps in agreements in a manner that goes beyond what follows from mere interpretation of the relevant agreements.

Arbitrators may also rule on the civil law effects of competition law as between the parties.

Arbitrators

Any person in possession of full legal capacity regarding his or her actions and his or her property may serve as an arbitrator. However, the parties may of course agree that the arbitrators shall have certain other qualifications than those stipulated in the Arbitration Act. Notably, the Arbitration Act does not require that the arbitrators are Swedish citizens or have residence in Sweden.

The parties are free to determine the number of arbitrators and how they shall be appointed. If the parties have not agreed on the number of arbitrators, the arbitral tribunal shall consist of three arbitrators, where each party appoints one arbitrator and the two party-appointed arbitrators appoint the chair­person. In accordance with the provisions set out in the Arbitration Act, the district court may, in some situations, get involved in the appointment of arbitrators (eg, if one of the parties fails to appoint an arbitrator).

The arbitration procedure

Unless otherwise agreed by the parties, the arbitral proceedings commence when a party receives a request for arbitration that fulfils certain requirements set out in the Arbitration Act.

The Arbitration Act states, inter alia, that the arbitrators shall handle the dispute impartially, appropriately and in a speedy fashion. They shall thereupon act in accordance with what the parties have determined, insofar as there is no impediment to doing so.

According to the Arbitration Act, it is the parties that shall supply the evidence. The parties to arbitral proceedings may rely on written witness statements, which in practice is common. If a party so requests, a final hearing shall be held before the arbitral tribunal renders a final award.

If a party wishes to have a witness or expert testify under oath, or a party examined under an affirmation of truth, the party may, after obtaining permission from the arbitrators, file a request for such hearings with the district court. This also applies if a party wishes to obtain an order for production of documents.

Costs of arbitration

As a main rule, the parties shall be jointly and severally liable to pay reasonable compensation to the arbitrators for work and expenses. However, the Arbitration Act also includes, inter alia, a provision that prescribes that the parties may jointly decide other­wise in a manner that is binding upon the arbitrators.

International matters

The Arbitration Act applies to arbitral proceedings that take place in Sweden even if the dispute has an international connection. Arbitral proceedings under the Arbitration Act may be initiated in Sweden:

  • if the agreement stipulates that the proceedings shall take place in Sweden;
  • if the arbitrators or an arbitration institute in accordance with the agreement has decided that the proceedings shall take place in Sweden; or
  • if the opposing party otherwise consents thereto.

Moreover, arbitral proceedings under the Arbitration Act may also be initiated in Sweden against a party that is domiciled in Sweden or is otherwise subject to the jurisdiction of the Swedish courts in respect of the matter in dispute, unless the arbitration agreement stipulates that the proceedings shall take place in another country.

Invalidity and annulment of awards

An award or a part of the award is invalid:

  • if it includes determination of an issue which, under Swedish law, may not be decided by arbitrators;
  • if the award, or the way in which the award was rendered, is clearly incompatible with the basic principles of the Swedish legal system (ie, ordre public); or
  • if the award does not fulfil certain requirements with regard to written form and signature.

Furthermore, a party may bring a challenge action before a court of appeal and request that the award be wholly or partly set aside. The court of appeal shall set aside the award:

  • if it is not covered by a valid arbitration agreement between the parties;
  • if the arbitrators have rendered the award after the expiration of the period determined by the parties, or if the arbitrators have otherwise exceeded their mandate;
  • if the arbitral proceedings should not have taken place in Sweden (according to a provision set out in the Arbitration Act);
  • if an arbitrator has been appointed in violation of the parties’ agreement or in violation of the Arbitration Act;
  • if an arbitrator was unauthorised in the sense that he or she lacked legal capacity regarding his or her actions and his or her property, or failed to fulfil the requirement of impartiality; or
  • if, for reasons not pertaining to the party, there otherwise occurred an irregularity during the proceedings and it is probable that the irregularity influenced the outcome of the case.

An award may not be set aside if the party challenging the award relies on a circumstance that the party is deemed to have waived, for instance, by participating in the proceedings without raising an objection. Moreover, an action to set aside an award must be initiated within three months from the date on which the party received the award or, where correction, supplementation, or interpretation has taken place pursuant to the Arbitration Act, within a period of three months from the date on which the party received the award in its final wording.

An action to have an award set aside shall be filed with the court of appeal. The decision laid down by the court of appeal may not be appealed. However, the court of appeal may grant permission for its decision to be appealed to the Swedish Supreme Court if it is considered that the adjudication process in Sweden at large is well served by a precedent from the Supreme Court.

Recognition and enforcement of foreign awards

Sweden is a party to the 1958 New York Convention. Thus, as a main rule, foreign arbitral awards based on an arbitration agreement shall be recognised and enforced in Sweden. However, some exceptions apply. For example, a foreign award shall not be recognised and enforced in Sweden if the award includes an assessment of an issue that, according to Swedish law, cannot be resolved by arbitrators, or if recognition and enforcement is deemed incompatible with the basic principles of the Swedish legal system.

The proposed amendments to the Swedish Arbitration Act

In 2014, the Swedish government appointed a government committee mandated to consider how the Arbitration Act may be amended to ensure that it continues to be a modern and efficient law that is attractive to Swedish and foreign parties and lawyers. On 30 August 2018, the government introduced a bill that comprises several, albeit not all, of the government committee’s proposals. In the new bill, the government proposes that the new law will enter into force on 1 March 2019.

Below, we summarise some of the key proposals in the bill.

  • Under the current Arbitration Act, the arbitrators may rule on their own jurisdiction. However, a party may also request that a general court rules on the arbitrator’s jurisdiction in a declaratory judgment. According to the current Arbitration Act, the arbitrators may in that case continue the arbitral proceedings pending a decision by the court. In other words, the issue of whether the arbitrators have jurisdiction may be the subject of parallel proceedings (ie, the arbitral proceedings and the court proceedings).

    Moreover, a party may challenge an award on the basis that the arbitrators lacked jurisdiction over the dispute. If a party prior to such challenge proceedings has requested that a district court rules on the issue of jurisdiction (as described in the paragraph above), and if that case is still ongoing when the challenge proceedings is initiated, the same issue may be the subject of two court proceedings at the same time.

    Hence, it is noted in the bill that the current legislation may lead to parallel proceedings regarding the same issue. It is also noted that this regulation deviates from rules applicable in several other countries. Against this background, new rules are proposed in the bill according to which a decision from the arbitrators that they have jurisdiction to resolve the dispute may be appealed to the court of appeal within 30 days. Furthermore, the bill introduces a procedural impediment that would bar a party from filing a separate request for a declaratory judgment with a general court after the arbitral proceedings have been initiated, unless the parties agree that the issue of jurisdiction shall be subject to such court proceedings.
  • As mentioned above, the Arbitration Act provides that the arbitrators must be impartial. The preparatory works provide that this requirement includes an assessment of whether an arbitrator is independent. However, since the Model Law sets out both an impartiality and an independence requirement, and since foreign parties may be confused as to whether independence is included in the assessment notwithstanding the absence of an explicit requirement to such effect, the bill includes a proposal that the term ‘independent’ shall be added to the relevant legal provision.
  • The current Arbitration Act lacks provisions that govern the possibility to consolidate two or more arbitrations. However, since the Act entered into force in 1999, provisions regarding consolidation of arbitrations have been introduced in the SCC Rules, as well as the set of rules provided by several other arbitration institutes. The government is now proposing consolidation rules in the bill according to which several arbitrations may be consolidated if the parties consent thereto, the arbitrators deem that the handling of the proceedings will benefit from a consolidation and the same arbitrators have been appointed in the arbitrations.
  • Contrary to several other arbitration frameworks, such as the Model Law and the SCC Rules, the Arbitration Act does not include any provisions concerning applicable substantive law. The following is now proposed in the bill:
    • It is proposed that it shall be clarified through an explicit provision that the dispute shall be resolved in accordance with the substantive laws or the set of rules agreed upon by the parties. According to statements in the bill, the parties shall also be able to choose to have their dispute resolved under a non-governmental framework such as the Principles of European Contract Law.
    • For the purposes of further clarification, the government also proposes a provision that provides that an agreement that designates a country’s law shall be understood as a reference to that country’s substantive law and not to its rules governing conflicts of law, unless otherwise prescribed pursuant to the parties’ agreement.
    • At present, the Arbitration Act does not contain any explicit rule governing the situation where the parties have not agreed on the applicable substantive law. It is proposed in the bill that if the parties have not entered into such an agreement, the arbitrators shall decide which substantive law shall be applied. It is proposed in the bill that the law shall not direct the arbitrators as to how to reach such a decision.
  • As mentioned above, an award may be set aside if the arbitrators have exceeded their mandate. In the current Act, there is no requirement that the excess of mandate must have affected the outcome of the arbitration. It is now proposed that this rule shall be complemented with a requirement that it must also be probable that the excess of mandate has affected the outcome.
  • Furthermore, it is proposed that the time limit for filing a request for the setting aside of an award shall be shortened from three to two months. The aim is to ensure that arbitration is indeed a speedy and efficient form of dispute resolution and to put the legislation closer in line with the law in, for example, France and England.
  • The proposed law would increase the opportunity to use the English language during the taking of evidence in the context of the challenge proceedings in court. Obviously, this is another concrete example of how the Swedish government is now striving to further facilitate litigation in Sweden for foreign parties. It is proposed that the court shall be able to take oral evidence in English (ie, that parties and witnesses shall be allowed to testify in English without interpretation to Swedish). However, it may be noted that currently parties may already submit written evidence in English to Swedish courts and that the Supreme Court has stated that such evidence often ought to be accepted.
  • The bill introduces a requirement that parties seeking to appeal a court of appeal’s judgment in a challenge proceeding must obtain permission to appeal from the Swedish Supreme Court. As mentioned, the court of appeal may in challenge proceedings grant permission for its judgment in a challenge proceeding to be appealed to the Supreme Court, if it is considered that the adjudication process in Sweden at large is well served by a precedent from the Supreme Court. Currently, no permission to appeal is required from the Supreme Court in these cases and the government notes that this means the Supreme Court is unable to limit its assessment to the very issue that is deemed necessary to clarify through a precedent from the highest court. Hence, the government now proposes that a requirement for permission to appeal is introduced into the law.

Brief introduction to the SCC Rules

Many of the provisions set out in the Arbitration Act are optional. Thus, to a large extent, the parties may decide whether their procedure shall be governed by the Arbitration Act or other rules. For example, the parties may agree that an arbitration shall be governed by a set of rules provided by an institution. As mentioned, institutional arbitration is very common in Sweden and most of these proceedings are administered by the SCC Institute and governed by the SCC Rules.

The latest version of the SCC Rules entered into force on 1 January 2017. The SCC Rules govern all fundamental aspects of the arbitral proceedings including, for example, confidentiality, the initiation of proceedings, the composition of the arbitral tribunal, challenge to arbitrators, the proceedings before the arbitral tribunal, evidence, interim measures, awards and decisions, time limits for the final award, costs of the arbitration and so on. Of course, the SCC Rules also provide the parties and the arbitral tribunal with a great deal of freedom to agree on a procedure as they see fit. It is also worth noting that the SCC Institute serves as an administrative body and that it is not a court of arbitration. Consequently, when the SCC Institute has referred the case to the arbitral tribunal, it has little involvement in the proceedings as such and it does not perform scrutiny of awards.

Where the parties have not agreed on the number of arbitrators, the SCC Institute shall decide whether the Arbitral Tribunal shall consist of one or three arbitrators, having regard to the complexity of the case, the amount in dispute and any other relevant circumstances. If the Arbitral Tribunal shall consist of three arbitrators (and if the parties have not agreed otherwise), each party shall appoint one arbitrator and the Board of the SCC Institute appoints the chairperson. If the parties are of different ­nationalities, the chairperson (or the sole arbitrator) shall be of a different nationality than the parties (unless the parties have agreed otherwise, or the SCC Institute otherwise deems it appropriate). In practice, arbitrators from many different countries act as arbitrators in SCC arbitrations. It may also be noted that the Board of the SCC Institute includes nationals from several different countries.

The SCC Rules have been adopted with the aim of ensuring a speedy and efficient proceeding. At the outset, a general rule prescribes that the arbitral tribunal and the parties shall act in an efficient and expeditious manner. Furthermore, under the SCC Rules, the arbitral tribunal shall promptly arrange a management conference with the parties to organise, schedule and establish procedures for the conduct of the arbitration. Immediately after the case management conference, the tribunal shall establish a timetable, including the date for rendering the award. The aim of ensuring speedy and efficient proceedings also underpins several other provisions set out in the SCC Rules, such as article 43, which provides that the final award shall be rendered no later than six months from the date on which the case was referred to the arbitral tribunal, unless the SCC Board decides to extend this time limit upon a reasonable request from the arbitral tribunal or if otherwise deemed necessary. Statistics for 2017 confirm that arbitration under the SCC Rules tends to result in expeditious proceedings: the majority of awards were rendered within six to 12 months from the time of registration.[3]

As mentioned, the latest version of the SCC Rules entered into force on 1 January 2017. Key changes made in the latest version of the SCC Rules included, for example, the following:

  • introduction of a summary procedure, under which the tribunal may decide one or several issues of fact or law without necessarily undertaking every procedural step that might other­wise be adopted for the arbitration;
  • provisions regarding joinder of additional parties under which a party to an arbitration may request that the Board of the SCC Institute join one or several additional parties to the arbitration;
  • provisions that allow parties to make claims arising out of or in connection with more than one contract in a single arbitration;
  • provisions regarding consolidation of arbitrations under which a newly commenced arbitration may be consolidated with a pending arbitration;
  • provisions regarding the use of administrative secretaries, which regulate the relationship between the secretaries, parties and tribunal;
  • provisions which allow arbitrators to order a claimant (or counterclaimant) to pay security for costs and to stay or dismiss the party’s claims in whole or part if the party fails to provide security; and
  • provisions emphasising the standard of efficiency and expeditiousness.

The SCC Rules for Expedited Arbitration

The SCC framework also allows parties to choose a particular form of expedited arbitral proceedings by agreeing before or after the dispute has arisen that the dispute shall be resolved in accordance with the SCC Rules for Expedited Arbitration. Under the Rules for Expedited Arbitration, the parties are only allowed to make a limited number of written submissions. In addition, written submissions shall be brief and the time limits for the filing of submissions may not (as a main rule) exceed 15 working days. Furthermore, under the Rules for Expedited Arbitration, the arbitration shall be decided by a sole arbitrator and the time limit for a final award is three months from the date on which the case was referred to the arbitrator. Further, a hearing shall be held only at the request of a party and if the arbitrator considers the reasons for the request to be compelling. In 2017, a majority of the awards rendered under this framework were rendered within three months and only 3 per cent of the awards were rendered after more than six months.[4]

Emergency arbitrators

In 2010, the SCC Institute became one of the first arbitration institutes in the world to offer the appointment of so-called emergency arbitrators. A party that wishes to seek a decision on interim measures may file a request with the ICC Institute to have an emergency arbitrator appointed in accordance with the rules set out in an appendix to the SCC Rules and the SCC Rules for Expedited Arbitration. In such a case, the SCC Board shall seek to appoint an emergency arbitrator within 24 hours of receipt of the application (in all three cases coming before the SCC Institute in 2017, an emergency arbitrator was indeed appointed within 24 hours) and a decision on interim measures shall be made no later than five days from the date on which the application was referred to the emergency arbitrator under the relevant SCC rule. The emergency decision is binding on the parties when rendered, and by agreeing to arbitration under the SCC Rules the parties thereby undertake to comply with any emergency decision without delay. However, the arbitral tribunal is not bound by the decisions and reasoning of the emergency arbitrator, and the emergency arbitrator’s decision ceases to be binding, for example, if the arbitral tribunal so decides.

Investor treaty disputes

The SCC Rules also include an appendix that sets out provisions that apply specifically to investor treaty disputes (ie, disputes based on a treaty providing for arbitration of disputes between an investor and a state). The SCC Rules are the third most commonly used arbitration rules in investment disputes and this makes the SCC Institute the second largest arbitration institute in the world (after ICSID) for the administration of investment disputes.[5]

Recent case law

The Swedish Supreme Court, Case Ö 5384-17

A May 2018 judgment by the Supreme Court has provided further guidance on how provisions imposing impediments to recog­nition and enforcement of foreign awards shall be interpreted and applied in the realm of competition law. As mentioned above, the main rule set out in the Arbitration Act is that foreign awards shall be recognised and enforced in Sweden. However, there are a few exceptions whereby an award shall not be recognised or enforced if: the award includes an assessment of an issue that, according to Swedish law, cannot be resolved by arbitrators; or if recognition or enforcement is deemed incompatible with the basic principles of the Swedish legal system (ie, ordre public).

The case concerned whether any of these two exceptions were applicable on grounds related to competition law. The foreign arbitral award, rendered in Norway, contained an injunction hindering competition between two parties and an obligation for one of the parties to pay damages based on a violation of an agreed restriction of competition.

The Supreme Court found that it did not have to rule on the enforcement of the injunction since the term of the injunction had expired by the time the Supreme Court was to make its decision.

However, the Supreme Court did consider the obligation to pay damages, and in a 3:2 decision it found that no impediment to the enforcement of the arbitral award was at hand.

The Supreme Court stressed that at the time the arbitral award was rendered, the parties could have entered into a binding agreement corresponding to the arbitral tribunal’s decision on damages.

Accordingly, there was no impediment to enforcement on the basis that the arbitrators could not resolve the issue.

With respect to the ordre public exception, the Supreme Court stated that the purpose behind the ordre public provisions is to ensure that courts and authorities do not assist in the enforcement of awards when such assistance would be ‘deeply offensive’ (in Swedish, höggradigt stötande). The Court then added that although it is generally required that the offensiveness is obvious, such an ‘obvious prerequisite’ is not applicable if the assessment pertains to peremptory competition law. Further, the Supreme Court clarified that the assessment of whether an agreement is prohibited under competition law, and therefore incompatible with the basic principles of the Swedish legal system, shall be based on the circum­stances that existed when the objection based on competition law was first raised. In this context, the Supreme Court noted that a party may continuously, and with binding effect, admit liability to indemnify the damage that is gradually caused through a violation of a condition hindering competition.

Further, the Supreme Court clarified that the interest of upholding the mandatory competition rules through the ordre public exceptions only requires that a party shall be required to invoke mandatory competition law to successfully contest continuous liability to indemnify. In the case at hand, the party invoking the ordre public provisions had not raised its objection related to competition law prior to the challenge proceeding in the Swedish court of appeal. Therefore, the ordre public exemption did not constitute an impediment to the enforcement of the award at issue.

Svea Court of Appeal, Cases No. T 765-16 and T 4427-16

On 21 October 2017, the Svea Court of Appeal rejected a protest action that was based, inter alia, on the claim that the arbitrators had exceeded their mandate by basing parts of the award on circumstances which, according to the challenging party, had not been referenced by the parties. The Svea Court of Appeal dismissed the challenge.

In the arbitral proceeding, the arbitral tribunal had assessed whether the parties had entered into an agreement to the effect that the respondent – a tenant – would be released from an obligation to pay rent in accordance with a previous written agreement between the parties, in the event that the respondent’s turnover from the relevant business would be less than a certain amount. The arbitral tribunal answered that question in the affirmative, basing its assessment on, inter alia, a fact brought into the dispute through an oral witness statement (namely, the fact that the witness had informed a person representing the claimant about the existence of the oral agreement according to which the respondent would be released from the obligation to pay rent if the respondent’s turnover would be less than a certain amount). However, this fact had not been invoked by the respondent during the arbitral proceedings.

In respect of the claim that the arbitrators had exceeded their mandate, the Court drew a distinction between ultimate facts (facts that have a legal consequence, ie, directly relevant circumstances) and evidentiary facts (facts that have evidentiary value when determining the existence of an ultimate fact, eg, indirectly relevant circumstances). The Court noted that an arbitral tribunal generally has exceeded its mandate if it bases its decision on an ultimate fact not invoked by the parties. On the other hand, an evidentiary fact does not have to be invoked by the parties; it is sufficient that the evidentiary fact has been introduced to the arbitral proceeding (eg, through witness testimony). In the case at hand, the Court found that the circumstances at issue constituted evidentiary facts and, consequently, that the arbitral tribunal had not taken an ultimate fact not invoked by the parties into account when determining the outcome of the case. Hence, the arbitrators had not exceeded their mandate on the basis contended by the challenging party.

Notes

[1] See the SCC Institute’s website, available at https://sccinstitute.com/statistics.

[2] See the SCC Institute’s website, available at https://sccinstitute.com/dispute-resolution/investment-disputes.

[3] See the SCC Institute’s website, available at https://sccinstitute.com/statistics.

[4] See the SCC Institute’s website, available at https://sccinstitute.com/statistics.

[5] See the SCC Institute’s website, available at https://sccinstitute.com/statistics.