Arbitration - Sweden

When arbitrators render an award, must they also give the reasons for it? The Arbitration Act 1999 contains no relevant provisions in this regard. However, according to Article 36(1) of the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce, unless otherwise agreed by the parties, the arbitral tribunal shall state the reasons on which the award is based.(1) However, what degree of reasoning is sufficient? This was one of the issues decided by the Svea Court of Appeal in the recent case of Rapla Invest AB (in bankruptcy) v TNK Trade Limited.(2)

Background

In August 2002 TNK filed a request for arbitration with the Arbitration Institute of the Stockholm Chamber of Commerce. TNK sought an award ordering Rapla to pay approximately $31 million plus interest in compensation for oil products delivered by TNK under a 2002 contract. Rapla denied the claim in its entirety, but the arbitral tribunal issued an award granting the relief sought by TNK.

Rapla asked the Svea Court of Appeal to set aside the award on the grounds, among others, that an irregularity had occurred in the course of the arbitral proceedings which might have influenced the outcome of the case. According to Rapla, the arbitrators had failed to consider the argument that one of the agreements between the parties was void under the doctrine of presumption.(3)

According to Section 34 of the act, an award shall be set aside upon the motion of a party if, without the fault of the party, an irregularity occurred in the course of the proceedings which might have influenced the outcome of the case, among other things.

Decision

First, the court considered the reasoning of the arbitral tribunal. After reviewing the reasons stated for the award, the court concluded that certain parts of the award could be interpreted as proof that the arbitral tribunal had considered Rapla's argument on the invalidity of the agreements under the doctrine of presumption. For example, the arbitral tribunal stated that Rapla had argued that the agreement was "invalid for several reasons"; according to the court, this could be taken to mean that the tribunal had considered several grounds for invalidity, including the doctrine of presumption.

The court went on to cite two prominent Swedish legal scholars, Professor Lars Heuman and Dr Stefan Lindskog.

Heuman states that unlike the United Nations Commission on International Trade Law Model Law, the Swedish Arbitration Act does not require that the arbitrators give reasons for their award. A party cannot compel the arbitrators to define their position on particular issues.(4) According to Heuman, the arbitrators must ensure that they have addressed all claims, grounds and objections as far as is necessary. However, the requirement that the arbitrators address all major issues does not imply that every allegation must be touched upon.(5) The arbitrators must consider the various allegations in matters of fact and questions of law as expressed in the pleadings. The award must make clear to the losing party that (i) its defence has been taken into account, and (ii) the arbitrators' assessment is based on arguments on which the party has been allowed to comment. However, the parties cannot expect that every minor issue will be addressed at great length; it is often sufficient for the arbitrators to present their standpoints (with no detailed reasoning) on the various - and often numerous - subsidiary issues that are of limited relevance to the final decision.(6)

According to Lindskog, a typical procedural irregularity is the arbitrators' failure duly to consider a particular claim, objection or proof. However, if a party claims that the arbitrators have failed to consider an argument or a piece of evidence, one must take into account that the arbitrators may have considered these matters without expressing this in the award. In order to take a position on this issue, it is necessary to assess what the rationale of the award should have included. Lindskog argues that where an argument cannot be expected to be accounted for in the award, it should be presumed that the matter has been considered by the arbitrators. The opposite is true if the arbitrators have failed to include a significant argument in their rationale.(7)

The court concluded that the arbitrators had not failed to consider Rapla's argument that the agreement was invalid under the doctrine of presumption. Therefore, Rapla had failed to demonstrate that an irregularity occurred in the course of the arbitral proceedings. Rapla's application for setting aside the award was thus dismissed.

The court did not grant leave to appeal to the Supreme Court.(8)

Comment

It is a balancing act for any arbitral tribunal to state the reasons for its award. If the arbitrators write too much, their task may become overly onerous. However, if they write too little, the award may be set aside.

The recent ruling by the Svea Court of Appeal may provide some guidance in this regard. The court referred to statements by two Swedish legal scholars, even though these statements are inconclusive. For example, Lindskog's argument can be summed up as follows: if there is reason to touch upon an argument in the rationale of the award, it should be included; if not, it may be omitted. Such a statement does not provide much guidance to arbitrators.

Endnotes

(1) Article 32 of the old Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce. The new rules entered into force on January 1 2007 and apply to any arbitration commenced after this date.

(2) Svea Court of Appeal, December 7 2006, T 5044-04.

(3) According to this doctrine - which is, to some extent, related to the doctrine of hardship (see Articles 6(2)(1) and (2) of the UNIDROIT Principles of International Commercial Contracts) - an agreement may be void if the agreement was based on a presumption, which was visible to the opposing party and was of material importance for the party relying on it (ie, it was a condition for the party's willingness to enter into the contract under the agreed terms), and if it is reasonable to transfer the risk for the erroneous presumption to the other party.

(4) Lars Heuman, Arbitration Law of Sweden: Practice and Procedure, page 497.

(5) Lars Heuman, Arbitration Law of Sweden: Practice and Procedure, page 499.

(6) Lars Heuman, Arbitration Law of Sweden: Practice and Procedure, page 516.

(7) Stefan Lindskog, Skiljeförfarande - En kommentar, pages 960 to 961.

(8) See Section 43 of the Arbitration Act.

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