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Arbitration is often the preferred method of dispute resolution
especially because the arbitration award is final and binding upon
the parties when rendered. However, a recent trend in international
arbitration is to challenge the arbitration award in order to avoid
its local enforcement. We recently successfully advised a Chinese
company in a Finnish process where the recognition of an
arbitration award was challenged due to the alleged violations of
e.g. procedural rules in the arbitration process.
Background
A Chinese construction company and a Finnish governmental entity
were involved in arbitral proceedings in China. The proceedings
were held under the applicable CIETAC rules in the Chinese language
and the case was tried in accordance with the material laws of
China as set forth in the contract between the parties. The award
was rendered in December 2010 in favour of the Chinese company.
However, the Finnish party refused to adhere to the award and the
Chinese company was forced to commence a recognition and
enforcement process in Finland. The Chinese company filed its
application for recognition and enforcement of the arbitral award
in October 2011 with the competent Finnish court. The Finnish party
disputed the application and demanded its dismissal.
Helsinki District Court rendered a decision concerning the
recognition and enforcement of the arbitral award in June 2012. The
arbitral award was ordered to be recognised and enforced in Finland
as requested by the Chinese company. As a result, the Finnish party
was also found liable to compensate the Chinese company for all of
its legal costs accrued in the Finnish recognition process.
The Finnish law concerning recognition and enforcement of
arbitral awards is based on the New York Convention of 1958.
Article V(2)(b) of the Convention concerning public policy as a
ground for refusal of recognition has been implemented with only
minor amendments in the Finnish Arbitration Act. Other impediments
for recognition listed in the Convention are also adopted in the
Finnish Act with only some slight differences. Therefore,
international case law can be used as guidance in Finland and any
Finnish cases can be exploited internationally.
Grounds for Objecting the Recognition and
Enforcement
In the proceedings, the Finnish party pleaded that the arbitral
tribunal was partial and neglected the Finnish entity's
procedural rights. The Finnish party claimed that the arbitrators
had unfairly advised the Chinese company during the proceedings and
that the Finnish party's right and chance to present both oral
and written evidence were, in certain respect, completely ignored.
Furthermore, it was claimed that the award was based on wrong
application of the Chinese law, both in material and procedural
respect.
Accordingly, the Finnish party claimed that its right to due
process was violated and therefore the arbitral award, was against
the Finnish ordre public.
The Finnish party demanded an oral hearing at the Finnish court in
order to prove its claims and appointed several witnesses to
witness about the arbitral proceedings.
The Court Decision
The District Court of Helsinki dismissed the Finnish party's
request for an oral hearing and rendered its decision in written
proceedings. The court reasoned that the award rendered by the
arbitral tribunal was final and it would be inappropriate as well
as against the Finnish Arbitration Act, CIETAC rules and the
Convention of New York to organise an oral hearing. The court
reasoned that an oral hearing would mean that the case would be
retried in practice although there already was a final
decision.
The court also reasoned that Article 8 of CIETAC rules (2005)
requires a party to submit its objection promptly when it holds
that the CIETAC rules have not been complied with or the party
shall be deemed to have waived its right to object. As the Finnish
party had not submitted any objections during the arbitral
proceedings, the court reasoned that it had waived its right to do
so later. The court also stated that an arbitral award can be
deemed invalid only extraordinarily.
After rejecting the Finnish party's request for an oral
hearing, the court briefly ruled that no grounds had been presented
not to recognise and enforce the arbitral award in Finland.
Therefore the court decided to accept the Chinese company's
application and ordered the arbitral award to be recognised and
enforced in Finland.
In conclusion, the recognition process of arbitral awards in
Finland is very summary and despite a party's request, the
courts are reluctant to organise any oral hearings. As a result,
challenging an arbitral award in Finland is at least for the moment
quite difficult.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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