Under §1 of the Swedish Arbitration Act (SAA), parties may submit to arbitration issues which they may amicably settle (with legally binding effect).

Under the first paragraph of §33 of the SAA, an arbitral award is invalid if it decides on a question which may not be submitted to arbitration (that is, a non-arbitrable issue).

Under the bullet point 1 of the first paragraph of §34 of the SAA, an award may, on appeal, be set aside, in whole or in part, if the award is not covered by a valid arbitration agreement between the parties to the award or, under the bullet point 6 of the first paragraph of §34 of the SAA, if a procedural error has occurred, which has affected the outcome (not caused by the appealing party).

The second paragraph of §34 of the SAA provides that, if a party has participated in the proceedings without objections, or is otherwise deemed to have waived his rights to complain, he is precluded from relying on the accepted circumstances in a subsequent set aside action.

The Moscow City Golf Club OOO (Golf Club) argued (among other things) that the loan agreement had been entered into in breach of the then existing mandatory currency exchange legislation of Soviet law and that it, as well as the arbitration agreement contained therein, was null and void. In that context, references were made to (among other provisions) Article 3.3 of the 1980 Rome Convention on the law applicable to Contractual Obligations and to Article 9(3) of Rome I, the EC regulation on the law applicable to Contractual Obligations of 2008, both of which deal with mandatory rules of the place of performance (and, therefore, arguably Russian mandatory laws on currency regulations).

On the issue of the currency regulations, the sole arbitrator found that the Golf Club had failed to prove that the Loan Agreement had violated mandatory Soviet or Russian currency regulations of the time.

The Golf Club appealed the award to the Svea Court of Appeal, Stockholm. It argued that, as the award ruled on an issue subject to mandatory regulations (currency regulations sanctioned by criminal law), arguably a non-arbitrable issue, the award was invalid or, alternatively, that the arbitration agreement was invalid as the agreement was in breach of mandatory currency regulations. Therefore, the award should be set aside.

The Svea Court of Appeal dismissed the appeal in a decision on 7 November 2011 (case T6798-10). It found that the arbitration agreement was governed by Swedish law and that the issues submitted to arbitration were arbitrable. The Golf Club had not shown any such deficiency relating to the arbitration agreement (considering also the doctrine of separability), that would lead to the invalidity of the arbitration agreement.

The Supreme Court came to the same conclusions as the Svea Court of Appeal.

The Supreme Court noted that the fact that there are mandatory rules within a given area of law does not mean that disputes within that area are non-arbitrable per se. To render the award invalid, the mandatory element must have some weight, and the interest of third parties or the public interest must be of significance. Foreign regulations will affect arbitrability in Sweden only if there is a Swedish interest in the enforcement of a foreign mandatory rule. Economic and political regulations of foreign states typically lack any Swedish interest, and other aspects may then be of significance, such as if the foreign material rules more directly aim at the parties' rights to settle or not. Contrary to the position of the Svea Court of Appeal, the Supreme Court found that the question of arbitrability should be decided on the basis of whether or not the parties could settle their dispute under the rules applicable at the time of the award, and not at the time of entering into the contract.

The Supreme Court did not consider the issues decided by the award to be non-arbitrable under Swedish law.

Considering the issue of setting aside, the Supreme Court emphasised that a party is obliged to lodge a protest if he wishes to dispute the competence of the arbitrator. If he fails to do so, the party is not entitled to request the court to set aside the award due to lack of an arbitration agreement. The protest must be sufficiently clear and, if the party wishes to rely on it, it must raise the separate issue as to the validity of the arbitration agreement. In the present case, the Golf Club had only noted the issue of the validity of the arbitration agreement as a side issue to its argument that the loan agreement was null and void, as expressed by the Golf Club in the arbitration "(including inter alia the provisions concerning the applicable law and arbitration clause)".

Therefore, the Supreme Court found that the Golf Club had not been sufficiently clear and it was not free to rely on an argument that the arbitration agreement was invalid. Consequently, the argument on procedural errors also failed.

The Supreme Court decision clarifies that arbitrability, which under Swedish law is connected to the parties' competence to settle the dispute amicably, is decided not on basis of the legal situation at the time of entering into the arbitration agreement, but at the time of the award. The difference may obviously be of the utmost significance.

The decision is also a reminder to the parties that challenges against the competence of arbitrators must be clear and outspoken.