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Svea Court of Appeal dismisses Emfesz appeal
Practical Law UK Legal Update Case Report 4-525-1289 (Approx. 4 pages)
Svea Court of Appeal dismisses Emfesz appeal
by Olof Rågmark (Partner), Advokatfirman Delphi, Stockholm
| Published on 13 Mar 2013 • Sweden |
In Svea hovrätt case T2737-11, the Svea Court of Appeal in Stockholm dismissed an appeal by Emfesz against an SCC arbitral award issued in 2011 in favour of Rosukrenergo AG, Zug, Switzerland.
Speedread
The Svea Court of Appeal has dismissed an appeal against an arbitration award of the Stockholm Chamber of Commerce (SCC). The court found that the SCC tribunal had not exceeded its mandate and that no other irregularity had occurred that affected the outcome of the decision. The tribunal's refusal to postpone the merits hearing and hear new witnesses did not deny the appellant the opportunity to defend itself properly. The appellant in this case had failed to inform the tribunal of which additional witnesses it wished to call, and the tribunal had reason to believe that no new witnesses would be called.
In this decision, the Svea Court of Appeal emphasises the discretionary power of the arbitral tribunal to tailor the arbitration process having regard to the features of the particular dispute, subject to the principle of equal treatment. It also demonstrates the importance of being specific when referring to the possible need for additional witness evidence. (Svea hovrätt case T2737-11.)
Background
Section 34(2) of the Swedish Act on Arbitration (1999:116) (SAA) provides that an arbitral award will be wholly or partially set aside at the request of a party if the arbitrators have exceeded their mandate.
Section 34(6) of the SAA provides that an arbitral award will be wholly or partially set aside at the request of a party if, without the fault of the party, irregularities occurred in the course of the proceedings that probably influenced the outcome of the case.
The second paragraph of section 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 those circumstances in a subsequent set aside action.
Facts
On 23 December 2004, Emfesz Elsö Magyar Földgáz és Energiakereskedelmi és Szolgáltató Korlátolt Felelösségü Társaság, Budapest, Hungary (Emfesz) and Rosukrenergo AG, Zug, Switzerland (RUE) entered into a contract for the delivery of natural gas (Agreement). Under the Agreement, Emfesz was entitled to require the delivery of up to three billion cubic metres of natural gas per year and RUE had to deliver the nominated quantities. The last nomination was made on 29 April 2009.
Emfesz failed to pay for gas delivered between September 2008 and April 2009. On 22 October 2008, RUE requested arbitration under the SCC Arbitration Rules for the unpaid amounts. Emfesz denied the claim and raised a counterclaim against RUE for breach of contract. In an award dated 17 March 2011, Emfesz was ordered to pay RUE US$527 million plus costs. The counterclaim was dismissed.
Emfesz challenged the award in the Svea Court of Appeal, Stockholm. It argued that the arbitrators:
- Had incorrectly identified the last nomination date as 23 April 2009.
- Had not addressed Emfesz's argument that the Agreement was a framework agreement and that nominations under it were separate sale contracts (and therefore failure to pay under one or more such separate contracts did not justify non-performance of the other separate sales contracts).
- Dismissed Emfesz's request for postponement of the main hearing and permission to call additional witnesses, thereby denying Emfesz the opportunity to defend itself properly.
Emfesz referred to section 34(2) and (6) of the SAA.
RUE submitted that:
- The incorrect date that had been quoted in the award was not sufficient to justify the setting aside of the award. Nor did it influence the outcome of the case.
- The arbitrators had addressed Emfesz's argument relating to the nature of the framework agreement, and had rejected it. In any event, the characterisation of the contractual relationship was a legal issue that had not affected the outcome of the case.
- The arbitrators' decision did not affect Emfesz's right to submit evidence and, in any event, Emfesz's right to rely on this allegation was barred, as Emfesz did not lodge an appropriately specific protest against the decision of the arbitrators.
Decision
The Svea Court of Appeal dismissed the appeal.
The incorrect nomination date
It was undisputed that the date provided in the award for the last nomination was incorrect. However, there was no indication that the arbitrators had based their considerations or reasoning on this incorrect date. It followed that the arbitrators had not exceeded their mandate. The court also rejected Emfesz's argument that the incorrect date amounted to an irregularity affecting the outcome of the dispute. Thus, this complaint did not give rise to any basis for challenging the award.
The framework agreement argument
It was clear that the arbitrators had tried Emfesz's argument regarding the framework agreement point but that the tribunal considered the nominations as parts of the Agreement, rather than as independent contracts. Therefore, no excess of the mandate or other irregularity had occurred.
The refusal to hear new witnesses
The court did not consider that Emfesz was barred from arguing that it had been denied the opportunity to defend itself properly: even though its protest letter against the arbitral tribunal's decision not to postpone the hearing had been short, Emfesz had lodged a protest. The court noted, however, that Emfesz had not clarified what further witnesses it wished to hear before the arbitral tribunal's decision. Therefore, the arbitrators had, in the court's opinion, reason to believe that there were no new witnesses to be heard over and above those that had been specified earlier. Section 21 of the SAA and the SCC Arbitration Rules provide that the arbitrators will conduct the proceedings in an impartial, practical and expeditious manner. Under the SCC Rules, the arbitrators have a wide discretion to handle the proceedings as they consider appropriate. The court found that the arbitrator's decision was well considered and no irregularity had occurred.
Emfesz was ordered to pay the legal costs of RUE in defending the appeal.
Comment
When challenging arbitral awards on grounds of procedural irregularity, the threshold question is often the effect of the alleged irregularity on the outcome of the dispute. The Swedish courts will often expect such an effect to be apparent in the award itself: it will generally not be sufficient to seek to draw conclusions from the nature of the irregularity in question.
The SAA and the SCC Rules both confer a wide discretionary power on the arbitral tribunal to handle the process in a practical manner adapted to the individual dispute, having regard to the requirements of equal treatment of the parties and of speed and efficiency. In this decision, the Svea Court of Appeal has emphasised the discretionary nature of this power. The decision also shows the importance of being specific when communicating with a tribunal about the need for additional witness evidence.