Judgment in the Swedish Supreme Court, 4 May 2018. Case No. Ö 3626-17
Summary: The question in the application to the Supreme Court was whether there were grounds for refusing recognition and enforcement of a foreign arbitral award in Sweden on the basis that the Respondent in the arbitration was not given an opportunity to present its case in the arbitration (see item 2 of Section 54 of the Swedish Arbitration Act, 1999:116).
The challenging party argued that they had not been given a sufficient opportunity to present their case in the arbitration proceedings conducted in accordance with the International Arbitration Court at the Chamber of Commerce of the Russian Federation (ICAC rules) and the Russian International Commercial Arbitration Act.
The Respondent to the arbitration did not submit a defence in the lead up to the main hearing. The tribunal postponed the main hearing in this matter on three separate occasions due to the parties informing the tribunal that they intended to resolve the dispute. When the parties finally informed the tribunal they had not reached a settlement the Respondent requested a postponement so that they could prepare their case on the merits. This request was denied and the arbitration continued without the Respondent submitting a Statement of Defense. In the final award the Respondent was ordered to pay an amount to the Claimant as well as compensation for the arbitration costs.
The Court of Appeal concluded that the Respondent had justifiable reasons not to submit a Statement of Defense and to not prepare to argue the case at the hearing. The Court of Appeal therefore rejected the Claimant’s application for enforcement. The Claimant applied to the Supreme Court.
The Supreme Court noted that the main rule for enforcement is that foreign arbitral awards shall be recognised and enforced in Sweden (Section 53 of the Swedish Arbitration Act). However, the arbitral award will not be enforced if the party, against whom the arbitral award is relied upon can establish that it did not have an opportunity to present its case (item 2 of Section 54, Article V(1)(b) New York Convention). The Court noted that the Respondent had been encouraged on two occasions to submit a Statement of Defense and the company did not comply with these procedural orders. However, the Court considered that the fact that the parties asked for a number of adjournments of the main hearing due to the attempts to reach an amicable settlement changed the circumstances of the arbitration. In this situation there was no need for the Respondent to file a Statement of Defence and the tribunal did not revert to the Respondent in relation to this once the arbitration continued. The Tribunal should have given the Respondent a reasonable opportunity to prepare its case on the merits. In not doing so the Tribunal has disregarded basic principles of due process. The Court considered that this, in conjunction with the fact that the Respondent was not successful in challenging the award in Russia, created an impediment to recognition and enforcement of the arbitral award in Sweden.