Sweden: Sweden Thrives As Neutral Arbitration Ground

REPRINTED WITH PERMISSION FROM THE OCTOBER 18 EDITION OF THE NATIONAL LAW JOURNAL ©

Although international commercial arbitration has a long history in Sweden, it was not until the 1960s and 1970s that international arbitration on a larger scale took off. This happened in the context of East/West arbitration. Within the Communist world, and wherever countries could dictate the method of dispute resolution favored by the Council for Mutual Economic Assistance (the CMEA, known in the West by the name Comecon), it had been the practice to bring arbitrations in the country of the defendant.

This method led to many complicated, or even duplicative, procedures. The solution was to move the seat of arbitration away from the countries of both the claimant and the respondent and place it in a third, neutral country. When trade picked up between the United States and the Soviet Union, the method of resolving any disputes was one of the key issues. Recognizing the wide acceptance of Sweden as a venue for international arbitration, the then U.S.S.R. Chamber of Commerce and Industry, the American Arbitration Association and the Stockholm Chamber of Commerce developed a model arbitration clause for use in contracts between parties in the United States and Soviet foreign trade organizations. This clause became known as the "Optional Arbitration Clause for Use in Contracts in U.S.A.-U.S.S.R. Trade 1977" and provided for arbitration in Stockholm, Sweden, under the auspices of the Stockholm Chamber of Commerce.

In 1992, after the collapse of the Soviet Union, a new agreement was entered into between the Chamber of Commerce and Industry of the Russian Federation and the American Arbitration Association. Based on the 1977 agreement, the new 1992 agreement reflected historical changes in Russia and retained the status of Stockholm as the preferred venue for arbitrations between the United States and the Russian Federation.

One of the key questions facing the international arbitration community in that context was the effect of the elimination of the Soviet foreign trade monopoly, followed by the creation of thousands of new players and private enterprises conducting international business out of the territory of the former Soviet Union. Over the past 15 years, that part of the world has been a good source of business for international lawyers dealing with dispute resolution, and the competition between centers for international arbitration has been keen.

In this environment, Stockholm has maintained its position as a leading, if not the leading, venue for East/West arbitration. Other important institutions providing services in this connection are, in particular, the International Chamber of Commerce in Paris, the LCIA (formerly referred to as the London Court of International Arbitration) and the Federal Economic Chamber in Vienna, Austria, as well as the International Courts of Commercial Arbitration in Moscow and Kiev, Ukraine.

It has been interesting to note that businesspeople in the former Soviet Union have availed themselves of their new freedom by often opting out of dispute resolution through local centers, even when disputes involve international business between former Comecon countries and the former Soviet Union.

Whereas, for instance, a dispute between a Bulgarian and a Ukrainian company would previously have been subject to arbitration before the court of arbitration at the relevant chamber of commerce and industry in the defendant's country, it is now a frequent occurrence for such disputes to be referred to Stockholm, or to Vienna or to other international centers.

The Arbitration Institute of the Stockholm Chamber of Commerce has handled disputes between, for instance, the Bulgarian and Ukrainian parties described above or between two companies domiciled in Kazakhstan. Many disputes that, on the surface, appear to involve Western interests on the one hand, or a party based in a tax haven on the other, may, on closer inspection, turn out to involve the interests of citizens of the former Soviet Union who have used their new economic liberty to do business through companies based in other parts of the world.

Whereas in the 1970s the average number of cases handled by the Arbitration Institute was as low as 11 per year, there has been considerable growth over the past two decades: In the 1980s, the average number of cases was 29; that figure grew to 110 in the 1990s and has been rising annually since then.

The geographical distribution of the parties in 2003 is shown by the chart above: "Who's arbitrating in Sweden". In this regard, it should again be noted that certain of the parties from outside the former Soviet Union are in fact owned by Russian and other interests based in the Commonwealth of Independent States (CIS), a federation including many former Soviet nations, so that the continued use of Swedish arbitration by Russian and CIS parties is understated. Nevertheless, it is clear that the preponderance of arbitrations involving parties in the former Soviet Union has been reduced in 2003 compared to, especially, the 1990s.

The chart shown above, "Subjects of Swedish Arbitration," analyzes the disputes by subject matter, but this superficial classification does not do full justice to its subject. Certain arbitrations are highly complex, for instance in the energy area, involving production-sharing agreements, joint ventures, supply contracts for equipment and products, etc. In fact, they often have to be broken up into several arbitrations due to the use of separate contracts with no arbitration clause tying them all together, although they are interrelated.

Other disputes are really over bad debts, and may be quite simple in principle-at least until the respondent brings in the excuses relied on for the failure to pay. In any event, it can be seen that, historically, arbitration in Sweden has covered a full range of commercial disputes, perhaps with some emphasis on heavy engineering contracts, although this is not obvious from the statistics quoted here.

The data have been provided by the Arbitration Institute and do not include ad hoc arbitrations in Sweden. They are probably fewer, but still add up to a respectable number by international comparison.

Recent years have seen a number of arbitrations with their origins in investments made under such circumstances that disputes involving alleged unfair treatment by the host state may be acted on through Stockholm arbitration under the terms of bilateral investment treaties.

Although occasionally a Swedish arbitration will have very little to do with Sweden, other than as a venue, it is inevitable that the legal system and traditions of the place of arbitration may have an influence on the preparation and conduct of the proceedings and the destiny of the award, whether it be the setting aside of proceedings or enforcement, or both. With the experience of 100 international arbitrations in Sweden, it is possible to say that lawyers from the common law and civil law countries, from several continents, appear to be able to become familiar with arbitration in Sweden very quickly. The Swedish system is adversarial in nature, with the arbitrators ruling on the case as presented by the parties. The arbitrators will recognize a duty to clarify the positions of the parties, if required, but do not take an inquisitorial approach. The rules on evidence are straightforward, with standard Swedish procedure adapted to the needs of arbitration, for instance by the frequent use of witness statements in substitution of an examination in chief.

The involvement of Swedish attorneys is sometimes limited, when the parties' counsel, whether in-house or not, find that they are able to represent the relevant party without any need for day-to-day local support. When Swedish lawyers are involved, whether as advocates or arbitrators, English-language skills are not a factor limiting choice, due to the widespread use of English for legal communications generally.

There has never been any rivalry between Swedish arbitral tribunals and the Swedish courts, with the latter happy to support arbitration when the need arises, as the record on challenges bears out.

It is possible to challenge a Swedish award before the Svea Court of Appeal but a recent survey shows that out of 13 challenges brought before that court in 1999 and 2000, three claims were withdrawn, and of the 10 cases tried on the merits, only one resulted in the award being set aside. The remaining nine actions brought to challenge an award were unsuccessful.

This is a reflection of an environment conducive to arbitration that limits the possibility to attack an award successfully to those cases where there have been serious violations of proper procedure. It is also possible to interpret these figures to support the conclusion that, conscious of the possibility that their award might be challenged, arbitrators are careful to avoid committing any mistakes of procedure that would impair the validity and enforceability of an award.

It may be a measure of the international interest in arbitration in Sweden that when the Arbitration Institute organized a symposium in Stockholm on Oct. 7-8 to mark the fifth anniversary of the adoption of the new Swedish Arbitration Act, the event was attended by lawyers from all over the world, with interest in fact exceeding the capacity, which was limited to 200.

Because of the many options now available to Russian and Western contracting parties, including those from the United States, when it comes to the choice of dispute resolution method, the significance to the Arbitration Institute of the classical U.S./Russian arbitration will no doubt continue to decrease, but new business from other countries and continents, in particular Eastern and Central Europe as well as Central Asia and China, support the continued growth of Stockholm as an arbitration center. A significant trend is the referral to Stockholm for arbitration of disputes between investors and host states under bilateral investment treaties, many of which offer the possibility of arbitration in Stockholm as an attractive alternative to other methods of dealing with disputes under such treaties.

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