Ukraine: Procedural Errors And Recognition Of Awards Of The Arbitration Institute Of The Stockholm Chamber Of Commerce

Last Updated: 16 July 2019
Article by Serhiy Yaroshenko and Valeriia Shablii

Stockholm arbitration has played a particular role for Ukraine. This place is known by several interesting facts. Firstly, Stockholm has become a platform for considering the most high-profile and large-scale, in monetary terms, commercial arbitration disputes with the involvement of Ukrainian entities. Secondly, a Ukrainian party has successfully won these disputes and legally obliged an opponent to pay considerable compensation. We refer to the disputes of Naftogaz against Gazprom (on purchase and transit of natural gas). Hence, being aware of changes in Swedish arbitration law is of crucial importance. For those who are currently involved in ongoing arbitration proceedings in Stockholm, or those engaged in foreign economic contracts with arbitration clauses or arbitration agreements that stipulate Stockholm as a relevant forum. Below we have shared interesting case-law of Swedish courts regarding the setting aside of awards of the Stockholm Arbitral Tribunal. In particular, these are judgements of the Supreme Court of Sweden, which explain when procedural errors of the arbitral tribunal errors may not serve as grounds to set aside awards under the Swedish Arbitration Act (hereinafter, "Act").

Supreme Court Caselaw

The Act aims at fully ensuring that an arbitration award is final and binding for parties to a dispute, while arbitral awards are cancelled rather rarely. However, where a Swedish court has discovered procedural errors made by the arbitral tribunal when delivering an arbitral award, it becomes likely that the latter may be cancelled, but only to an extent that has arisen due to an error. Where it is impossible to separate a part of an award with a procedural error from the remaining part of the award, the award must be cancelled, namely where an award is delivered with an error pursuant to Article 34(6) of the Act.

By its judgement dated 29/03/2019, and, contrary to the caselaw on cancellation of awards of the Stockholm Arbitral Tribunal based on a procedural error made by the tribunal pursuant to Article 34 of the Act (the case of CicloMulsion v. NeuroVive), the Supreme Court of Sweden dismissed the complaint against recognition and enforcement of the arbitral award in arbitral dispute of Koka v. Belgorkhimprom (Belgor), despite a procedural error in the arbitration award.

A Belarusian company Belgor engaged a Turkish contractor to perform, inter alia, construction and land works in mines in Turkmenistan. Belgor terminated the contract, which served as a basis for the Turkish company to initiate arbitration. The amount of Koka's claims to Belgor constituted USD 31 million, including USD 11 million for the performed works and provided equipment, and approximately 20 million as lost profits. Belgor's counterclaim constituted USD 10 million as the amount of compensation for delivery of poor quality works. In addition, the party disputed competence of the tribunal to consider the dispute on certain additional works since allegedly such works were out of scope of an applicable arbitration clause. Following consideration of the dispute, on 3 April 2015 the Stockholm Arbitral Tribunal award Koka  the compensation of USD 9 million to be paid by Belgor and dismissed the remainder of claims.

Belgor challenged the arbitration award before the Svea Court of Appeal. The Belarusian company submitted that the tribunal allegedly (a) delivered an award on issues not stipulated by an arbitration clause, and allegedly made procedural errors (b) by failing to judge on the issue  covered by the dispute; (c) by failing to provide the Belarusian company with adequate opportunity to present its legal position; (d) by delivering the award without evidence. The court obliged Belgor to compensate Koka USD 7.5 million and dismissed the remaining claims. Belgor further challenged the award before the Supreme Court of Sweden seeking full cancellation of the arbitral award. We suggest review in more detail the provisions, which, in Belgor's opinion, constituted a procedural error, and hence served as a ground to set aside the arbitral award.

Tribunal failed to consider the issue covered by the dispute

The cooperation terms provided for the accrual of interest in Turkish company's favour based on its invoices.

The court resolved that the arbitration award was not to be cancelled even due to a procedural error. In order to cancel it, it is required to prove unsubstantiated position of the tribunal, which allegedly affected the outcome of arbitration and was important for the plaintiff in appeal proceedings.

According to the Supreme Court, the essence of the procedural error was that, on the one hand, the tribunal considered Belgor's position on denying the accrued interest, and, on the other hand, rendered that there was no dispute on calculation of the accrued interest. The effect of the procedural error was not significant for the plaintiff, hence Belgor's petition was dismissed.

Belgor had no adequate opportunity to present its legal position

Belgor believes that the procedural error included also a circumstance, under which the tribunal allegedly restricted Belgor's  ability to prove defects of the performed works.

The Supreme Court rejected this argument. The Court resolved that the arbitral tribunal was more competent than the local court to decide on the need to grant additional time for gathering evidence. This matter may be considered if it has arisen due to circumstances, which are beyond parties' control, and which a party could not have reasonably foreseen. Such a party may not have acceptable alternatives to realise its position.

Arbitral award delivered without evidence

According to Belgor, the arbitral tribunal made a procedural error when it admitted portion of Koka's claims, despite the lack of evidence. However, the Supreme Court of Sweden resolved that the assessment of the tribunal in terms of evidence was not an issue of procedure, nor abuse of power.

Conclusions

The above approach to assessing the significance of procedural errors by Swedish local courts is an interesting example of how the tribunal's procedural errors will not necessarily serve as grounds for cancelling arbitral awards. In particular, where a court assesses that such an error is not reasonably significant for a party seeking cancellation of an arbitral award on such basis.

Knowing this caselaw might be helpful for Ukrainian counterparties who opt for Stockholm Arbitration to defend their rights and interests. And especially for those wishing to minimise their time and legal costs in proceedings instituted by opponents and challenging arbitral awards.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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