UK: Swedish Court of Appeal Upholds Conflicting Award in Parallel BIT Arbitration Proceedings

Last Updated: 17 July 2003

The well-known saga of Ronald Lauder’s investments in the Czech Republic, which resulted in parallel arbitral proceedings being brought under two applicable bilateral investment treaties (BITs) in London and Sweden, has seen an interesting twist. The Czech Republic, having been largely successful in the London proceedings, challenged the Award issued in the Swedish proceedings in which it had been found to be in breach of the BIT between the Netherlands and the Czech Republic. On 15 May 2003 the Swedish Court of Appeal dismissed the Czech Republic’s challenge.

The factual history giving rise to the proceedings is a complex one. In essence, the Swedish Award found that the Czech Government was responsible for the "creeping expropriation" of a Lauder-owned Dutch media company by a Czech government body over a period of time through a series of actions and omissions.

The Czech Republic challenged the Swedish Award on the grounds that, inter alia:

  1. the Tribunal had failed to apply the applicable law in accordance with the relevant BIT;
  2. the Czech Republic’s arbitrator had been excluded from the Tribunal’s deliberations; and
  3. the Tribunal had lacked jurisdiction due to lis pendens and res judicata.

Since the seat of the arbitration had been Stockholm, the Swedish Court of Appeal decided that the Award should be reviewed according to Swedish law taking into account the relevant principles of international law. 

Relying on European Court of Justice case-law, the UNCITRAL Model Law and the 1958 New York Convention, the Court stated that the annulment of an arbitration award should only take place in exceptional circumstances. An award could only be set aside when the Tribunal had applied a different law to that expressly chosen by the parties. Mere erroneous application of the applicable law was insufficient reason to set aside an award. The BIT had allowed the arbitrators to "take into account" four sources of law. The Court considered that the Award was properly grounded in law as the arbitrators had principally applied one of these sources, namely international law. It found that the BIT itself did not dictate to what extent and in what order the various sources should be considered.

The Court rejected the Czech Republic’s argument that its arbitrator had been excluded from the Tribunal’s deliberations, stating that Swedish law merely required that arbitrators handle disputes impartially, expeditiously and promptly. The Court referred to the Swedish Arbitration Act and UNCITRAL Model Law, both of which provide against sabotage of proceedings by an arbitrator. The Court determined that once the arbitrators have deliberated, if two arbitrators have agreed on the outcome of the case, the final arbitrator may not delay the drafting of the Award in an attempt to persuade the others. In any event, the Court held that the evidence presented did not support the Czech Republic’s allegation that its arbitrator had been excluded.

As regards the Czech Republic’s argument based upon lis pendens and res judicata to the effect that the existence of the London proceedings should have prompted the arbitrators in the Swedish proceedings to refuse jurisdiction or to stay the proceedings before them, the Court of Appeal ruled that the Czech Republic had waived such objections as it had not raised them before the Swedish Tribunal itself but rather had relied upon separate arguments of abuse of process. The Czech Republic submitted that its argument based upon the principles of lis pendens and res judicata had formed part of the abuse of process arguments employed before the Tribunal. The Court did not make any findings on this point, holding instead that, under Swedish law, the requirement that the same parties must be involved in both cases in order for arguments of lis pendis and res judicata to succeed had not been satisfied. Therefore the principles could not apply.

The Court’s decision to limit the scope for reviewing the Award indicates a strict adherence to the New York Convention principles of encouraging enforcement of arbitral awards wherever possible. This case highlights the need for parties to raise issues such as jurisdiction, lis pendens and res judicata at an early stage of proceedings before an arbitral tribunal. Perhaps more importantly, it reinforces the desirability of working towards the consolidation of proceedings brought under different BITs whenever possible to avoid conflicting awards being issued. It is thus a decision of great relevance in any case where a multiplicity of proceedings has been generated under different BITs but arising out of the same set of facts.

Article by Robert Volterra, Adam Johnson and Larry Shore

© Herbert Smith 2003

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

For more information on this or other Herbert Smith publications, please email us.

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