Sweden (or the SCC) is also cited as the forum for resolving disputes between investors and the state in at least 120 different bilateral investment treaties (BITs). Investigate Europe spoke with SCC’s Secretary-General, Annette Magnusson about the arbitration process, how different it is to national legal systems, and why it is beneficial for Sweden to play a big role in international dispute resolution.
Excerpts from the interview:
Why, according to you, is arbitration needed? Why are ordinary courts not enough?
One shouldn’t think that arbitration is always better than a court process, rather that it’s another way of resolving disputes, which sometimes is better. To begin with, you can only use arbitration for certain types of disputes. All countries have their own rules for which disputes you can use arbitration for. It is what we refer to as ‘arbitrability’.
Arbitration is a legal proceeding just like a regular court proceeding. The outcome is final. An arbitral award can be enforced in over 150 countries, which is not the case with a judgment from a national court. The international reach of an arbitral awards is made possible thanks to a UN convention from 1958, the so-called New York Convention. An arbitration award rendered in Sweden can be enforced in Kenya or Japan, for example. This would not be possible with a court judgment. For international transactions, there are really no rational alternatives to arbitration.
What many companies want is for the arbitrators to have cutting-edge expertise. Arbitration is also faster [than national courts]. Arbitration is a one instance procedure, which means the award can’t be appealed on the merits. For many companies, time could be more important than being one hundred percent right. Companies want to know if they should demand money or pay money, and then they want to move on. Arbitration proceedings also take place behind closed doors. And confidentiality is worth a lot, because companies want to settle their disputes without competitors having full insight into their disputes.
And, in an international context, most companies seek to avoid a court procedure away from home. Arbitration provides a neutral platform and a levelled playing field for all involved. Everyone is abroad, or at home, depending on how you look at it. That is worth a lot.
But in disputes where the state is a party — where it is ultimately about tax money — isn’t this secrecy problematic?
For investor-state arbitration, the situation is different in terms of confidentiality. Here, there could be public interests involved, like issues relating to access to water, or disputes involving taxes. Since 2014, there are UN rules in place that ensure transparency in these disputes, but it is up to the states to say that they want this transparency.
The SCC appoints the chairman for the arbitration, and the disputing parties each appoint one arbitrator. Tell me about this procedure.
That is right. But just because a party appoints an arbitrator, it doesn’t mean that the arbitrator represents the party in any way. All arbitrators must be impartial and independent.
There are a number of factors when our board appoints arbitrators, which might weigh differently depending on the dispute: which law applies? Investment disputes, to a large extent, involve international law. Another relevant factor is what type of investment is it? In what language is the procedure? Which nationalities are involved? The arbitration chairman must have a neutral nationality. Is there any industry-specific knowledge that could be valuable in this particular dispute?
If a party is of the opinion that an arbitrator does not fulfill the mandatory criteria of impartiality and independence, the party can challenge the appointment of the arbitrator. The challenge is thereafter finally decided by the SCC Board. The bar to sit as an arbitrator is high. An arbitrator’s impartiality should be assessed objectively. This means that if a situation or a relationship exists that would normally lead to the conclusion that the arbitrator is not impartial, the challenged arbitrator should be dismissed even if there is no reason to assume that he or she will lack impartiality in the specific dispute concerned.
If you look at how [arbitration proceedings] are regulated by Swedish law and the rest of the world, the rules regarding the procedure itself are quite minimal but contain safeguards for impartial and independent procedures and the rule of law. The parties can, to a large extent, agree on the procedures themselves. This is what is referred to as party-autonomy. But [the proceedings] have to respect fundamental standards of the rule of law and the equal representation of the parties — that is, both parties have to be allowed to make their case and the arbitrators must be impartial and independent.
If a party is of the opinion that an arbitration procedure or the award did not live up to the minimum standard of a fair proceedings as defined under the law, the award can be challenged. In Sweden, this means that a challenge is filed with the Svea Court of Appeal, which will then examine whether the arbitration was conducted in a manner fulfilling the requirements of the law, or not. It is the same in all modern jurisdictions around the world.
What happens if the Court of Appeal concludes that the process violated procedural safeguards under the law?
Then the award will be set aside, in full or partially. It is very unusual, but it happens.
Is it important for Sweden that the SCC is a big player in international dispute resolution?
If you ask me, it’s very valuable. In the last twenty years, the number of arbitration institutions in the world has increased. Hosting international arbitration is perceived as attractive, by cities and governments. When someone negotiates an agreement, regardless of whether it’s a state or a company, and decide on the venue for its disputes, that decision communicates trust. Such “good will” spills over to the Swedish export industry and the Swedish brand.
Arbitration also involves a significant service export. Many Swedish lawyers work with these disputes, gain experience and then work with clients all over the world as specialists in international disputes, and, for example, investment law. We have seen Swedish law firms represent European states in disputes before the World Bank. That wouldn’t have happened if we had not had the SCC in Stockholm.
Then there is an indirect economic effect on Swedish GDP. [The arbitrators, parties and their counsel] come to Stockholm, stay in a hotel for three weeks, attend hearings in hearing rooms, go out to dinner every night and perhaps shop presents for their families.