Finland Remains Reliable Place of Arbitration

In summary

This article addresses recent developments in Finnish arbitration. In particular, it takes a closer look at recent case statistics of the Finnish Arbitration Institute, some practical experiences in applying the Arbitration Institute of the Finland Chamber of Commerce (FAI) Arbitration Rules of 2020, as well as the prevailing arbitration-friendly approach visible in recent case law from the Finnish courts. It also touches upon the current status of the move to update the Finnish Arbitration Act.

Discussion points

• FAI arbitration
• Changes to the FAI Arbitration Rules in 2020
• FAI Statistics 2021
• Details of the proposed update to the Finnish Arbitration Act
• Finnish arbitration-related case law

Referenced in this article

• FAI Arbitration Rules 2020
• FAI Expedited Arbitration Rules 2020
• FAI Statistics 2021
• Finnish Arbitration Act

Introduction

Finnish society is based on trust. It is not a coincidence that Finland consistently ranks among the top nations in the world in terms of good governance and in the high levels of trust of their citizens in public institutions and in the Finnish legal system.^[1] The Finnish people’s trust in the police and tax authority is at the highest level in the world. In addition, or as a consequence of that, in 2022 Finland was ranked, for the fifth consecutive year, the happiest country in the world according to the United Nations World Happiness Report.^[2]

With such high levels of trust and happiness, one may argue that Finland is a perfect ground for fair play legal battles.

The Finnish Arbitration Institute

The Arbitration Institute of the Finland Chamber of Commerce^[3] (FAI) is the leading dispute resolution institute for international parties in Finland. The FAI was established in 1911 and has, throughout the years, kept up to date with international developments in arbitration and has amended its rules twice over the past decade.

Changes to the FAI Arbitration Rules

The first change to the Arbitration Rules, introduced in 2013, was part of a wider trend of revisions of arbitral rules that included the ICC Rules (2012), the UNCITRAL Arbitration Rules (2010), the Arbitration Institute of the Stockholm Chamber of Commerce Rules (2010) and the Swiss Rules of International Arbitration (2012).

In 2020, a working group set up by the FAI collected feedback and proposals for the development of the 2013 Rules from a broad group of stakeholders domestically and internationally. The updates made by way of the 2020 FAI Arbitration Rules^[4] focused on further increasing speed, efficiency and flexibility, which are topics that rank higher every year in surveys dedicated to arbitration (such as the 2021 International Arbitration Survey: ‘Adapting arbitration to a changing world’).^[5]

Practical experiences of working with the updated FAI Rules

Since the updated FAI Arbitration Rules came into effect on 1 January 2020, the institute has maintained a solid caseload. It saw a grand total of 101 requests for arbitration in 2020 and 89 corresponding requests in 2021. Out of the 2021 caseload, 76 per cent were cases under the Arbitration Rules, 15 per cent applied the Rules for Expedited Arbitration and 8 per cent were ad hoc cases where the institute only appointed the arbitrators. Regarding the composition of the arbitral tribunal, the vast majority of the cases commenced in 2021 (82 per cent) saw the appointments of sole arbitrators, while the amount of international cases (25 per cent) were in line with recent years (27 per cent in 2020).^[6] At the time of writing, 2022 looks set to see an even higher number of international cases.

With respect to speed and efficiency, the FAI continues to be a very high-performing institute. In line with recent years, the median duration of arbitrations in 2021 was eight months under the Arbitration Rules and four months under the Expedited Rules, respectively. The institute is also known to appoint a significant amount of female arbitrators and mediators: in 2021, 25 per cent of the appointments made by the institute were female, with the corresponding number in 2020 being 26 per cent.^[7]

As it can be very difficult to predict what kinds of disputes may arise from a certain contract at the time of drafting, the updated FAI rules of 2020 include certain mechanisms for added flexibility in the choice between the FAI Arbitration Rules and the Expedited Rules after a dispute has arisen. One of these mechanisms is the invitation for parties to comment on the appropriate rule set in the request for arbitration as well as in the answer to the request for arbitration.^[8] To some extent, the institute has already seen such remarks from the parties, showing that the opportunity to comment is appreciated by the users.

In that same vein, the rule update also brought with it a new model clause, commonly referred to as a ‘combination clause’. This provides for expedited arbitration as a starting point, but gives the institute the authority to – at the request of a party – decide that the FAI Rules should be used instead, if the institute considers this to be appropriate taking into account the amount in dispute, the complexity of the case and other relevant circumstances.^[9] At the time of writing, this clause has already been inserted into some of the agreements on the basis of which FAI arbitration has been commenced, further evidencing that users are welcoming the added flexibility.

The Finnish Arbitration Act

The Finnish Arbitration Act^[10] has been in force since 1992. In addition to the Arbitration Act, Finland has ratified and enacted the 1958 New York Convention and ratified the International Centre for the Settlement of Investment Disputes Convention.

Both domestic and international arbitration proceedings in Finland are currently governed by the Arbitration Act. While the Arbitration Act largely mirrors the provisions of the UNCITRAL Model Law on International Commercial Arbitration of 1985, it nevertheless diverges from it in some respects. One notable example of such divergence is the unlimited possibility for an unsuccessful party to request the final award to be declared null and void at any time in the foreseeable future. Other such examples are the lack of express powers of arbitrators to order interim measures, and the prospect of lengthy setting aside proceedings resulting from the possibility to appeal the district court’s decision to the court of appeal and, ultimately, to the Supreme Court.

In January 2019, the Finnish Ministry of Justice announced the commencement of the revision process of the Arbitration Act. The Ministry established a working committee that was due to study options for the reform until the end of 2021.^[11] However, the mandate of the working group expired at the end of 2021 and appears not to have been extended. As such, it is unclear when – or if – a revision of the law will occur.

Finnish courts remain arbitration-friendly

Case law rendered in recent years further confirms the prevalent arbitration-friendly approach of the Finnish courts. Notably, the Market Court has declined jurisdiction over claims that were brought in relation to a contract that contained an arbitration clause, while in another case it confirmed that a previous ICC award did not create a res judicata effect with respect to different claims presented in the Market Court. Furthermore, the Turku Court of Appeal confirmed that a pathological arbitration clause does not render the arbitration agreement null and void. In the following, we will briefly address these three cases.

Firstly, in a case brought by a patent holder against an alleged infringer of the said patent, the Market Court considered that it lacked jurisdiction over some of the claims as they related to a settlement agreement, which contained an arbitration clause.

The patent holder, acting as the claimant, had argued that the Market Court should render a judgment on a variety of claims, some of which were put forth based on, for example, copyright legislation, while others related to a certain patent. As the usage of that patent was the subject of a previous settlement agreement that contained an arbitration clause, the respondent argued that the Market Court lacked jurisdiction to hear any claims related to that patent. The claimant, on the other hand, argued that he was not a party to the settlement agreement, and it also did not bind the respondent, as the respondent’s predecessor had signed it. However, the Market Court concluded that both the respondent and the claimant were bound by the settlement agreement, as it stated that it would also bind other patent holders (such as the claimant) and that by law, the rights and obligations of the respondent’s predecessor had been transferred to the respondent.

While the resolution of intellectual property disputes in and of itself falls within the jurisdiction of the Market Court, such jurisdiction is not exclusive in certain civil or commercial matters where the parties are allowed to reach a settlement. As such, the Market Court agreed with the respondent and concluded that owing to the arbitration clause in the settlement agreement, it lacked jurisdiction to hear the claims related to the alleged infringement of the patent that was the subject matter of the settlement.^[12]

In the second case, the Market Court had to evaluate whether a previous ICC arbitral award had any impact on claims presented in the Market Court on the basis of the Finnish Unfair Business Practices Act. While mindful of the award in question, the court concluded that this arbitration concerned a contractual dispute between the parties, and that the remedies now requested in the Market Court – such as a conditional fine – were not within the arbitrator’s jurisdiction, but rather fell within the exclusive jurisdiction of the Market Court. As such, the Market Court concluded that the claims presented were admissible, as they had not previously been neither raised nor granted or dismissed in the arbitration.^[13]

The third case concerned a pathological arbitration clause in which the parties had agreed that an entity that did not exist should appoint a sole arbitrator to resolve disputes arising from the agreement in question. The Turku Court of Appeal confirmed that the arbitration clause was valid despite this, and that in such an instance, the court should appoint an arbitrator as per section 17 of the Finnish Arbitration Act, unless it is evident that the arbitration has no legal grounds. As there was no reason to suspect a lack of legal grounds, the Court of Appeal returned the case to the District Court and instructed the District Court to appoint an arbitrator.^[14]

Conclusion

Over the past few years, Finland has seen many developments in international arbitration. The well-prepared and professional FAI, and the state-of-the-art FAI Arbitration Rules, have contributed to the inclusion of FAI arbitration clauses in many major contracts between a Finnish and an international party. In addition, the flexibility to choose between expedited arbitration and ‘regular’ arbitration once a dispute has arisen is a much-welcomed addition.

An element that helps consolidate these developments are the national courts, which are generally arbitration-friendly. In addition, Finnish courts usually facilitate interim relief in a short period of time and in cases where the underlying agreement includes an arbitration clause. To increase know-how and keep legal practitioners updated, every year the FAI organises educational training for lawyers called the Finnish Arbitration Academy. In 2022, the eighth Arbitration Academy will be held.

Last but not least, Finland has been a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1962. This makes it easier to enforce and recognise awards rendered abroad in Finland and vice versa. As an EU member, the EU regulations governing jurisdiction and the recognition of foreign judgments are also part of the Finnish legal system.

We started this article by mentioning that the basis of Finnish society is trust. However, this basis is complemented with a business-minded approach that does not leave much room for nonsense. The 2020 Global Innovation Index ranks Finland in seventh place among 131 countries and economies around the world, whereas several corruption indexes rank Finland on the shared first place among the three least corrupt countries together with Denmark and New Zealand. As such, Finland remains a prominent option for where to seat your arbitration.

Footnotes