Finland: A Guide To Finnish Arbitration Law

The formal legal requirements for an arbitration agreement to be enforceable under Finnish arbitration law are in substance identical to those of the UNCITRAL Model Law on International Commercial Arbitration (the "UNCITRAL Model Law").

An arbitration agreement therefore needs to be made in writing. This requirement can, however, also be fulfilled by using modern means of communication, as long as they provide a written record of the agreement to arbitrate.

There are no special requirements required for an individual person to conclude an arbitration agreement. All persons who have the legal capacity to conclude a contract concerning the subject matters in question do also have the capacity to enter into an arbitration agreement with regard to the possible resolution of disputes that pertain to such matters. The capacity of foreigners to conclude an arbitration agreement is determined according to the law applicable to them.

It is advisable to address and explicitly determine the following matters when drafting an arbitration agreement:

• the parties to the agreement,

• the scope of the agreement (most often determined in the broadest possible way, i.e. "any disputes arising out or in connection to this agreement…"),
• the law governing the main agreement (the law on the basis of which the substance of a possible future dispute should be assessed),
• the seat of the arbitration,
• whether ad hoc or institutional arbitration,
• the applicable institutional rules,
• the number of arbitrator(s),
• the way in which the arbitrator(s) should be appointed,
• the language(s) to be used in the arbitral proceedings, and
• confidentiality (as between the parties).

Finland has a long tradition of arbitrating disputes. A remarkably high number of commercial disputes are referred to arbitration and arbitral clauses are very frequently included in domestic as well as international business agreements. Arbitration is therefore a well-known device in Finland and the environment, including the approach of national courts, can accordingly in general be said to favour and respect arbitration agreements.

Finnish courts do not ex officio refer disputes to arbitration. Therefore, in case a defendant intends to invoke an arbitration agreement, it shall request the court to refer the parties to arbitration. This should, at the latest, be done when the defendant is submitting its statement on the substance of the dispute (i.e. corresponds to the system set out in the UNCITRAL Model Law).

Arbitration in Finland is governed by a specific act, the Arbitration Act (967/1992, as amended) (the "Arbitration Act"). The Arbitration Act entered into force on 1 December 1992. The Arbitration Act governs the enforcement of both arbitral awards rendered inside and outside of Finland.

It should be noted that Finland has ratified and enacted the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention").

The Arbitration Act is divided into two sections: Section one (Articles 2-50) applies to all arbitral proceedings having their seat in Finland, i.e. irrespective of whether related to a national or an international dispute, and Section two (Articles 51-55) applies to all "foreign awards", i.e. arbitral awards having been rendered outside of Finland.

The Finnish legislation on arbitration was reformed in 1992. The main purpose of the reform was to modernize the then existing arbitration act (dating back to 1928) and adapt it to international standards. The present act reflects the provisions of the UNCITRAL Model Law, although the UNCITRAL Model Law has not as such been implemented into Finnish law.

Under the Arbitration Act, any dispute in a civil or commercial matter which is capable of being settled between the parties, can be submitted to be finally resolved in arbitration by an agreement between the parties.

It is considered that the decisive criterion is whether the recourse sought could be obtained without the intervention of public authorities. Accordingly, Finnish law does also recognize that an arbitral clause contained in the articles of association of a public company be applied to a dispute regarding e.g. the validity or nullity of a resolution of the general meeting of shareholders or liability for damages of the directors.

The fact that Finnish courts apply a broad concept of arbitrability has recently been confirmed by the Finnish Supreme Court (judgement No. 2003:45 of 14 May 2003).

Once arbitral proceedings have been instituted, the arbitral tribunal is permitted, and obliged, to rule on its own jurisdiction. In case the arbitrators find that the disputed matter(s) fall within their jurisdiction, the arbitral proceedings may consequently also be continued.

If one of the parties does not find that the arbitration agreement is valid or finds that the disputed matter(s) fall outside the scope of the arbitration agreement, such party may, however, institute a declaratory action to this effect before the court of first instance of the place in which one of the parties are domiciled or, if none of the parties is domiciled in Finland, at the District Court of Helsinki.

The validity and scope of an arbitration agreement may therefore also be tried by Finnish courts, even during pending arbitral proceedings.

As indicated above (3.2), the arbitrators do not have exclusive jurisdiction as to the determination of their jurisdiction. A Finnish court can be requested to address the issue under the following four circumstances:

• In case proceedings are initiated before a Finnish court and the defendant, prior to addressing the merits of the dispute, objects to the court’s jurisdiction, the court shall decide this issue as a preliminary question and is obliged to refer the parties to arbitration, if it finds that the matter(s) in dispute is covered by an arbitration agreement.
• Further, a separate action can be instituted before a Finnish court aimed at having the court’s assessment of whether a specific arbitration agreement is valid or of whether a certain matter(s) in dispute is covered by such arbitration agreement.
• Furthermore, an arbitral award may, upon request of a party, be set aside by a Finnish court, if the court finds that the arbitrators have exceeded their authority.
• Finally, lack of jurisdiction, in certain circumstances, constitutes grounds for refusing recognition and enforcement of an award.

Under Finnish law an Arbitral Tribunal has, as a general rule, only jurisdiction to decide disputes as between the parties to the arbitration agreement. With regard to the extent to which, and under which circumstances an arbitration agreement may be considered to bind also other parties no reported case law exists.

Under the Arbitration Act, any natural person may be appointed to act as arbitrator, including non Finnish nationals, and the parties are free to agree on the arbitrators’ qualifications, the only general requirement being legal capacity (which means that the person in question must be of age and may not be under guardianship or in personal bankruptcy).

If a party, who shall appoint an arbitrator, fails to do so within a certain period of time, the arbitrator shall, upon request of a party, be appointed by the court.

It is generally considered that a court cannot intervene in arbitral proceedings other than when specifically stipulated in the law, i.e. a court cannot give "anti-suit injunctions" or comparable measures.

If the parties’ chosen method for selecting arbitrators fails or if an already appointed arbitrator dies, resigns or is removed, the court may, however, upon request appoint a new substitute arbitrator in his or her place.

An arbitrator must be independent and impartial.

A person who has been approached for the purposes of being appointed arbitrator is, unless he or she refuses the appointment, under a duty to disclose all circumstances likely to give rise to justifiable doubts as to his or her impartiality or independence. A person having been appointed arbitrator is further subject to a continuing obligation, throughout the arbitral proceedings, to disclose all such relevant circumstances of which the parties have not previously been informed.

The Arbitration Act is applicable to all arbitrations having their seat in Finland. The act contains a fairly small number of procedural rules and only one mandatory provision, reflecting the principle of audiatur et altera pars (the parties’ right to be given sufficient opportunity to present their case). Otherwise emphasis is on the parties’ wishes, impartiality and speed.

It is widely recognized that the Finnish Procedural Code does not apply to arbitral proceedings, not even in a complementary manner.

As mentioned above (5.1), the Arbitration Act contains only one mandatory procedural rule: the parties’ right to be given sufficient opportunity to present their case, which in practice means that both parties, as a main rule, shall be allowed (i) to file own written pleadings and reply to written pleadings filed by the other party, (ii) to present written and oral evidence, including hearing witnesses and/or experts, (iii) to comment on evidence presented by the other party, including conduct cross-examination of such party’s witness(es)/expert(s), and (iv) to argue their case.

The Arbitration Act contains no specific rules on how the hearings should be arranged. The arbitrators are under a general obligation to ensure the impartiality and expediency of the arbitral proceedings. Besides, arbitral proceedings conducted in Finland are characterized by flexibility and driven by the parties’ individual wishes.

The Arbitration Institute of the Central Chamber of Commerce of Finland (the "Arbitration Institute") provides institutional arbitration services domestically as well as internationally. The Arbitration Institute has issued a set of arbitration rules which supplement the Arbitration Act. The rules correspond generally to those of other international arbitration institutes and are published in Finnish, Swedish, English and Russian on the institution’s home page: www.arbitration.fi.

The courts have no right to intervene during arbitral proceedings in case e.g. the arbitrators have deviated from what has been agreed by the parties (but it can constitute grounds for the court setting an arbitral award aside afterwards).

If an arbitrator is unable to perform his or her functions in an adequate manner or if he or she without just cause delays the arbitration, the court shall, however, upon request from a party, remove the arbitrator. Such decision cannot be appealed.

The Arbitration Act does not contain specific provisions on multiparty arbitration. The Arbitration Rules of the Arbitration Institute, however, provide for that the institute may appoint all arbitrators in case there are more than two parties involved in the arbitration. Consolidation of multiple arbitrations requires the consent of all of the involved parties. Also the joining of or intervention of a third party requires the consent of both parties.

Under Finnish law, arbitrators have no power or authority to grant enforceable interim or conservatory relief and such measures cannot be submitted to arbitration by party agreement.

Interim remedies are available in support of arbitral proceedings on the condition that the arbitral award to be obtained acknowledging the existence of the underlying claim is recognized and enforceable in Finland.

Said condition does usually not give rise to any concern as Finland has ratified the New York Convention and has not made a reciprocity reservation restricting the convention’s application to arbitral awards rendered in countries that have also ratified the New York Convention. The starting point is therefore that all foreign arbitral awards are recognized and enforceable in Finland.

The filing of an application for interim relief does not affect the jurisdiction of an arbitral tribunal.

In practice, Finnish courts approach a request for interim relief made in connection to arbitral proceedings in the same way as requests for such relief made in disputes where the underlying claim(s) is subject to litigation before a court of law.

In Finland, the procedure for obtaining interim relief to secure a monetary claim is generally rather straightforward and expedient. However, there are various mechanisms to protect the interests of the defendant, such as the applicant’s strict liability for damages, an obligation to lodge a full security to cover such possible damage and an obligation to initiate proceedings with regard to the underlying claim within a short period of time.

The competent local court will most often be the District Court having jurisdiction in the area where the party against whom the request is made is domiciled or has assets.

No specific rules of evidence exist. The Finnish Procedural Code does (as mentioned above (5.1)) not apply to arbitral proceedings conducted under Finnish law, but the rules of evidence contained therein will often serve as a source of inspiration in domestic arbitral proceedings.

Arbitral proceedings, including international arbitral proceedings, conducted in Finland, as well as in other Nordic countries, are, in general, characterized by pragmatism and informality.

Arbitrators are allowed to ask that a party, a witness or another person appear before them in order for the arbitral tribunal to promote an appropriate and expedient examination of the dispute. The arbitrators have, however, no authority to impose penalties or issue enforceable procedural orders to this effect, nor does the arbitral tribunal have authority to take testimony under oath or under any other similar solemn affirmation.

The arbitrators are further, upon request of a party or ex officio, allowed to request (but not order) a party or another person to submit such documents or other objects in their possession that the arbitral tribunal deem relevant for the assessment of the dispute.

Arbitrators have, in general, no authority under Finnish law to issue enforceable procedural orders.

Finnish law does not provide for any mechanism comparable to "disclosure or discovery" under common law.

The proceedings will, as a main rule (i.e. provided that the parties have not agreed otherwise or the composition of the arbitral tribunal and/or the nationality of the parties in dispute require differently) be driven by the parties who are responsible for the presentation of all of the relevant facts and necessary evidence in support of their case.

Arbitrators are, however, as mentioned above (7.1) allowed to request (but not order) that a party or another person submit such documents or other objects in their possession to the arbitrators which the arbitral tribunal deem relevant.

If the arbitral tribunal deems it necessary that a witness or an expert be examined in court, that a party be examined under oath or that a party or any other person be ordered to produce evidence of relevance, a party may request court assistance. Such requests have been rare, but it is assumed that a court would generally provide such assistance expeditiously, within its normal rules of procedure. For example, a court can only order the disclosure of a specified document (as opposed to unspecified documents) that is in the possession of the person who is asked to provide the document. Equally, a court cannot order the disclosure of a document if disclosure would result in the revelation of a business secret.

The general practice has been that each party shall provide the evidence in support of their claims. If necessary, a party can ask the arbitral tribunal to request another party or a third person to present documents or other objects in their possession to the arbitral tribunal. As noted above, the arbitral tribunal does not have the power to enforce its requests for evidence. It can only draw its conclusions from a party’s refusal to provide requested documents. As the concept of common law style disclosure/discovery is foreign to Finnish procedural law, courts would not assist with requests for common law style disclosure/discovery. Requests for extensive discovery have not been a common feature in arbitration proceedings conducted in Finland.

The Arbitration Act does not contain specific rules regarding the production of written and/or oral witness testimony.

The Finnish Procedural Code does generally not allow for written witness statements to be filed. However, as the Code does not apply to arbitral proceedings, it is not excluded to agree to make such filings in an arbitration, and written affidavits are in fact often used in international arbitral proceedings conducted in Finland.

Unless the parties have agreed otherwise, the arbitrators are entitled to appoint an expert to establish facts and give a statement on such matters that require special professional knowledge and which the arbitral tribunal deem relevant when assessing the case. In such case, the arbitral tribunal may also request a party to give the expert all necessary information and offer the expert opportunity to inspect documents, goods and other property.

Finnish law does not specifically regulate the treatment of documents which have been submitted in the context of arbitral proceedings.

Under the Arbitration Act, arbitral tribunals shall decide disputes in accordance with the rules of law applicable to the substance of the particular dispute in question. Arbitral tribunals are in this context not bound by Finnish conflict of law rules.

An arbitral tribunal may only decide ex aequo et bono, if the parties have expressly authorised it to do so.

The award shall be made in writing and shall be signed by each of the arbitrators. In the arbitral award shall be stated the date and the place of arbitration.

If all of the arbitrators are not in agreement about the outcome, the award shall be rendered in accordance with the opinion of the majority of the arbitrators. If no majority vote can be attained for any opinion, the opinion of the chairman shall prevail, unless otherwise agreed by the parties.

If the parties manage to settle their dispute during the arbitral proceedings, the arbitral tribunal may record such settlement in the form of an arbitral award (by consent).

The arbitral tribunal may also render a separate partial award on an independent matter in a case where several claims have been made or decide separately a part of a claim. However, a claim for monetary relief and a set-off claim made against it shall be decided together.

If the parties so agree, the arbitrators may finally separately render an arbitral award regarding an issue on which the resolution of other parts of the dispute depends.

When the award has been made, a copy of the signed award shall be given to each party at a session of the arbitral tribunal or delivered to them in a verifiable way.

An arbitral award cannot, under Finnish law, be appealed as to its merits.

Notwithstanding the above, the amount of compensation due to the arbitrator(s) (if it has been fixed in the award, as is commonly done), can be appealed by the parties within a certain time limit after having received the award.

Otherwise, the only recourse available to a party against an arbitral award is an application to set aside the award on the grounds specified in the Arbitration Act. An award can be set aside by a court if: (i) the arbitral tribunal has exceeded its authority, (ii) an arbitrator was not duly appointed, (iii) an arbitrator could have been disqualified from acting as arbitrator, but challenge to this effect has not been accepted before the award was given, or the party has only become aware of the grounds for disqualification at such a late stage that it has not been able to challenge the arbitrator before the arbitral award was given, or (iv) the arbitral tribunal has not given a party sufficient opportunity to present its case. In addition, an arbitral award shall be null and void to the extent that the arbitrators have decided a non-arbitrable issue or to the extent that the award violates the public policy of Finland (ordre public).

Finnish law has traditionally not provided for any form of appeal against an arbitral award, neither on the law nor on the facts of the case. See also answer to question 9.1 above.

The Arbitration Act does not provide the parties with a possibility to enter into exclusion agreements by which they in advance waive their right to seek remedies against arbitral awards. Thus, an action for setting aside cannot be excluded by an agreement between the parties made prior to the rendering of the arbitral award.

Finnish law has traditionally not provided for any form of appeal against an arbitral award, neither on the law nor on the facts of the case. In theory, the parties may in their arbitration agreement provide for an appeal on the merits of the award to a second arbitral instance, but such agreements have been extremely rare and are, as such, not envisaged in the legislation. See also answer to question 9.1 above.

Finland has (as mentioned above (2.1)) ratified the New York Convention. Finland has not made any reservations regarding reciprocity or restricted the convention’s application to awards in commercial disputes.

The Arbitration Act contains provisions on the enforcement of arbitral awards rendered in Finland (Articles 43-45) and separate provisions (Articles 51-55), reflecting the New York Convention on the recognition and enforcement of arbitral awards rendered outside of Finland.

All arbitral awards made in Finland, irrespective of whether related to a national or an international dispute, are subject to the same set of enforcement and recourse rules. The grounds for refusing the enforcement of an arbitral award rendered outside of Finland are slightly different from those applying to awards rendered in Finland, whereas the enforcement procedure as such is identical.

The enforcement of an arbitral award shall be initiated before the competent court of first instance (a District Court), most often the court having jurisdiction in the area where the losing party is domiciled or has assets. No time limit exists.

Under Finnish law, a Finnish court may only dismiss an application for the enforcement of an arbitral award ex officio in case the court finds that the award violate the public policy of Finland.

Further, non-arbitrability of a given disputed matter does not as such constitute a ground for refusing the recognition or enforcement of a foreign arbitral award.

The application for the enforcement of an arbitral award shall be accompanied by the original arbitration agreement and the original award or a duly certified copy (and translations, if the documents are not already in the Finnish or Swedish languages or a special exception has been granted by the court). The court is not entitled to require any other documents or evidence in support of the application for the enforcement.

Under Finnish law, a valid final arbitral award regarding the merits of the dispute constitutes res judicata immediately when rendered. It is binding between the parties and must be accepted by courts, arbitral tribunals and other authorities as a final decision on the disputed matters which have been ruled upon by the arbitral tribunal. If one party were to bring a court action against the other party with respect to the same subject matter(s), the court would accordingly have to dismiss the action on the ground that the issue(s) has been disposed of and is res judicata. The same would apply if one party would seek to retry the case before another arbitral tribunal.

As opposed to proceedings before a Finnish court, arbitral proceedings conducted in Finland are not public. No statutory provisions ensuring the confidentiality of arbitral proceedings exist, but it is generally accepted in Finland that arbitrators are not allowed to disclose what has come to their knowledge during the proceedings.

In the event that an arbitrator is a member of the Finnish Bar Association, it is conceivable that he or she would be considered to be bound by the confidentiality obligations applicable to Bar members also when acting as an arbitrator.

With respect to the parties in dispute, the legal position is less clear. In order to make sure that a counter party would be subject to a confidentiality obligation, it is therefore recommendable that the issue is addressed and determined in the arbitration agreement or at the latest when the arbitral proceedings are instituted.

As mentioned above (7.3), Finnish law does not provide for any mechanism comparable to "disclosure or discovery".

As also mentioned above (11.1), Finnish law does not contain any statutory provisions ensuring the confidentiality of arbitral proceedings. The question of whether information disclosed during arbitral proceedings can be referred to and/or relied on in subsequent proceedings is complex as a variety of different situations can be envisaged. As a general rule, it could be said that it is conceivable that such information can be used in subsequent proceedings.

See answer to question 11.1 above.

Punitive damages cannot as such be sought under Finnish law. In case the parties, however, have agreed that a legal system, which does recognize punitive damages, should be applicable to the substance of the dispute and such dispute is dealt with in an arbitration having its seat in Finland, it is conceivable that the arbitrators would award punitive damages. However, it is possible that the arbitral tribunal would find that such result might violate the public policy of Finland and therefore could result in a risk of the award being set aside or make it impossible to enforce the award in Finland.

As a main rule, interest can be awarded if requested by the parties in accordance with the law applicable in the specific case.

Unless otherwise agreed or decided, the parties are jointly and severally obliged to pay a reasonable fee to the arbitrators and compensate their expenses.

The arbitral tribunal may order the losing party to partly or fully compensate the expenses incurred by the other party in connection to an arbitration (including also reasonable fees and expenses to legal counsel), unless otherwise agreed by the parties.

The award as such is not subject to tax.

Finland has signed the Convention on the Settlement of Investment Disputes between States and National of other States (also known as the ICSID Convention or the Washington Convention) on 14 July 1967 and deposited its instrument of ratification on 9 January 1969. Finland has attained status as Contracting State to the ICSID Convention on 8 February 1969.

Finland has signed Bilateral Investment Treaties (BITs) with over 50 countries. Most of these BITs have entered into force and allow for recourse to arbitration under the auspices of the International Centre for the Settlement of Investment Disputes (ICSID).

Finland has also signed the Energy Charter Treaty and ratified it on 16 December 1997.

Finland has developed a Draft Model Agreement on the Promotion and Protection of Investments.

There is no record of any investment dispute involving Finland as a state having been resolved by means of ICSID arbitration to date (October 2005).

The Arbitration Institute provides since 1 June 2004 for fast track arbitration intended to last not more than three months. With effect as from April 2005, the Arbitration Institute can also assists parties in the appointment of a mediator, referred to as impartial persons to conciliate disputes arisen in the conduct of business when the parties have so agreed.

The arbitration rules of the Arbitration Institute include, in a manner common to many other international arbitration institutes, a suggestive table of fees to be paid to arbitrators conducting arbitration under its rules. The suggestive table of fees is also applicable to expedited arbitration where the minimum fees would generally be applied. The table has recently been revised. The revised table is applied to fees of arbitrators who have been appointed after 1 June 2005 and can be found at: http://www.arbitration.fi/en/arbfees.html

Finland’s strategic position in the Baltic Sea region may lead to a growing number of international commercial disputes being arbitrated in Finland and under the auspices of the Arbitration Institute in the future. The Arbitration Institute’s arbitration rules are also published in English and Russian on the institute’s home page: www.arbitration.fi

Petri Taivalkoski is a partner at Roschier Holmberg. He is, together with the firm’s senior partner, Mr. Tomas Lindholm, heading the firm’s Corporate Advisory and Disputes group responsible for all aspects of corporate senior advice, including preventive risk counseling, legal risk and liability management as well as dispute resolution

Mr. Taivalkoski is an experienced litigator and provides services as institutionally or ad hoc appointed arbitrator or counsel for one of the parties in domestic as well as international disputes.

Mr. Taivalkoski has gained an LL.M. from the University of Helsinki in 1990 and a DEA degree from l’Université Panthéon-Assas Paris II in 1996. Mr. Taivalkoski joined the firm in 1991 and became a partner in 2000. He has been a member of the Finnish Bar since 1995.

Mr. Taivalkoski is a member of the Mediation Board of the Finnish Bar Association since 2001, member of AIJA, including president of the AIJA Civil Litigation Commission since 2000. Finally, he is secretary since 2001 of the Guild of Law and Ethics of Advocates.

Mr. Taivalkoski’s working languages are Finnish, Swedish, English, French and German.

Helle Lindegaard is a specialist counsel at Roschier Holmberg. She forms part of the firm’s Arbitration and ADR practice stream responsible for providing services as institutionally or ad hoc appointed arbitrators or counsel for one of the parties in domestic as well as international disputes.

Ms. Lindegaard has gained an LL.M. from the University of Copenhagen in 1984. She joined the firm in 2000. She has been authorized to work as Advokat in Denmark since 1992. In 2000 she became member of the Danish Bar and in 2001 she was admitted to the EU register of the Finnish Bar Association. She is a CEDR Accredited Mediator since 2002.

Before joining the firm, and moving to Finland, in 2000, Ms. Lindegaard was appointed judge in Denmark in 1998. She has a long EU-law experience behind her, working for the Danish Ministry of Justice as legal attaché in Brussels and as head of the EU-division responsible inter alia for litigations before the European Court of Justice as well as lecturer of EU-law at Copenhagen University.

Ms. Lindegaard is member of AIJA, CEDR Exchange and Dansk Forening for Voldgift and an Eisenhower Fellow.

Ms. Lindegaard’s working languages are Danish, English, Swedish and French.

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.