A challenge was brought before the Svea Court of Appeal by the Respondent (a Russian company) against an arbitral award rendered in Stockholm in favour of the Claimants (two US companies). The main argument advanced by the Respondent was that the Arbitral Tribunal had exceeded its jurisdiction by applying a conflict of laws provision rather than the law chosen by the parties. The Claimants’ case was that the Arbitral Tribunal’s application of the conflict of laws provision was a consequence of the parties’ choice of law and that the Arbitral Tribunal had therefore acted within its mandate.
The arbitration was handled by the Arbitration Institute of the Stockholm Chamber of Commerce.
The parties had agreed that both Russian law and New York law would apply to the contract. However, there was a conflict between Russian and New York law in relation to a specific issue which arose in the arbitration. The Arbitral Tribunal therefore applied both Russian and New York conflict of laws principles and determined that New York law should apply.
Under the Swedish Arbitration Act, an award may be challenged only on formal grounds, for example, if:
there was no valid arbitration agreement;
the arbitrators have exceeded their jurisdiction; or
if there has been an irregularity in the proceedings which has influenced the outcome of the case.
The Svea Court of Appeal found that when the parties’ choice of law leads to conflicting results, the Arbitral Tribunal does have jurisdiction to apply such conflict of laws principles as it deems appropriate. The Court of Appeal indicated that the Arbitral Tribunal would be deemed to have exceeded its jurisdiction only if it had deliberately disregarded the parties’ choice of law. In this case, The Court of Appeal found that the Arbitral Tribunal had applied the correct substantive law, i.e. New York law, in accordance with conflict of laws principles. Further, the Svea Court of Appeal ruled that an incorrect interpretation of law would constitute a substantive error and not a procedural error, so would not be capable of challenge in any event.
The Respondent’s application to set the award aside was refused.