ICCA Focus on Sweden

• applicable law to substance determined by arbitral tribunal
• applicable law to substance is law of country of closest connection
• discretion of arbitrator to determine applicable law to substance
• applicable law to substance and choice of seat of arbitration
• Hong Kong law applied
• seat of arbitration determined by arbitral institution
• CISG is not part of the law of Hong Kong
• interpretation of arbitration clause
• interpretation of contract
• nominal v. actual contract
• hidden defects of goods
• timely notification of defects (no)
• reimbursement of payment (no)
• proof of damage (no)
• mining of cryptocurrencies

Yearbook XLVI (2021) pp. 120-126

seat of the arbitration: Stockholm, Sweden

• breach of contract by wrongfully terminating connected contract
• pacta sunt servanda
• Swedish law applied
• valuation of shares subject to put option right
• calculation of damages
• interest
• modification of claim (interest) under SCC Rules
• modification of claim after cut-off date
• apportionment of legal costs
• legal costs in proportion to unsuccessfulness
• reasonable legal costs
• costs of arbitration shared equally by parties

The sole arbitrator decided a dispute concerning the effects of the premature termination by the respondent of a Distribution Agreement concluded with a company (the distributor), in which the present claimant was a minority shareholder, on an Option Agreement between the respondent and the claimant. The Option Agreement, which was governed by Swedish law, established both a call option right for the respondent and a put option right for the claimant. The respondent had terminated the Distribution Agreement two years before the contractual expiry of the current term; this termination had been deemed unjustified in a previous SCC award between the respondent and the distributor. The claimant argued that the unjustified premature termination had destroyed the business of the distributor, and thereby negatively affected the claimant's put option right in respect of its percentage of the distributor's shares under the Option Agreement, since the value of the put option was to be calculated based on the sales made by distributor in the preceding 12 months. (1) Based on the language of the two agreements, a related agreement, and the parties' correspondence, the arbitrator held that the Distribution Agreement and the Option Agreement were closely related, so that a wrongful termination of the Distribution Agreement constituted a breach of the Option Agreement. By making it impossible for the claimant to exercise its put option right before the contractual expiry of the Distribution Agreement through its unjustified termination, the respondent had breached the Option Agreement and was required to pay damages to the claimant. The arbitrator rejected the respondent's argument that while the Option Agreement expressly required the claimant, in respect of the respondent's call option, not to take any action that could adversely affect the business of the distributor, the claimant had not asked for a similar protection in respect of its put option right and therefore lacked such protection. The arbitrator explained that the claimant could rely on the principle of pacta sunt servanda, i.e., could expect that, absent a breach, the Distribution Agreement would remain in force and create the opportunity for the exercise of the put option. (2) As to the quantum of the damages, the sole arbitrator held that the claimant failed to prove the assumption of sales and commissions growth on which it based its calculation. Referring instead to the historical sales numbers and the arguments of the parties in the arbitration, the arbitrator held that only a much smaller amount of commissionable sales in the relevant period was proved, leading to damages of about one-fourth of the damages claimed by the claimant. (3) The arbitrator granted the claimant's claim for interest in accordance with the Swedish Interest Act from the date of the request for arbitration until full payment under the award. He denied the argument of the respondent that the claim should be rejected because the claimant had modified it – in response to a remark from the arbitrator as to, inter alia, the starting date of the interest claimed – after the general cut-off date set forth in a procedural order. The arbitrator explained that the general cut-off date did not exclude the application of Art. 30 of the SCC Rules, according to which a party could amend or supplement its case prior to the close of the proceedings. In this case, the proceedings had not yet been closed on the date of the modified request. (4) Considering that the claimant had prevailed on the breach of contract issue, on which considerable resources had been spent by both parties, but had been granted only about a fourth of the damages claimed, the arbitrator held that the claimant should bear its own legal costs and reimburse Respondent for one third of its legal costs – which were significantly lower than the costs claimed by the claimant and thus to be deemed reasonable – and that the parties were to bear the costs of the SCC arbitration equally.

Yearbook XLVI (2021) pp. 127-130

seat of the arbitration: London, United Kingdom

• license agreement
• Swedish law applied
• interpretation of contract
• right of first refusal
• cost allocation under English law
• reasonable legal costs

The award resolved a dispute centered on the parties' conflicting interpretations of the term “Line Extension Products”, and the extent of a right of first refusal in a License Agreement governed by the law of Sweden. The arbitral tribunal found that the product that was the subject of the dispute qualified as a Line Extension Product according to the clear terms of the relevant provisions in the parties' License Agreement. Therefore, the respondent had a right of first refusal in respect of that product. The broad language of the clause that contained the definition of the term “Line Extension Products” had to be read in conjunction with the narrower language of the definition “of Line Extension Products” in the clause concerning the right of first refusal. The latter clause comprised a non-exhaustive illustrative list of new developments of a product that would subject it to a right of first refusal. The arbitral tribunal found that each of the new developments listed applied to the product at issue. Moreover, each of the declarations the claimant sought in its request for relief would have required the tribunal to exclude from the definition of “Line Extension Products” one, several, or all of the new developments of the non-exhaustive list. Having granted to the respondent the relief it requested, the arbitral tribunal ordered the claimant to pay the costs of the arbitration and the respondent's legal costs, with the exception of the costs the respondent had claimed for the time its in-house counsel had spent on the dispute, as there was no evidence that the respondent had incurred extra costs for that time.

Yearbook XLVI (2021) pp. 131-136

seat of the arbitration: Malmö, Sweden

• interpretation of contract
• share purchase agreement
• Swedish law applied
• limitation of liability
• termination of contract due to breach of contract
• apportionment of legal costs
• arbitration costs in proportion to unsuccessfulness

The case concerned the termination of a share purchase agreement governed by Swedish law. The sellers (Claimants 1-17) had terminated the agreement for the sale and purchase of shares in a company they owned because the purchaser had failed to find the necessary additional funding by the agreed closing date. The purchaser did not contest that its failure amounted to a breach of contract, but argued (i) that its liability was contractually limited to the proved costs incurred by the sellers in respect of the sale, or (ii) that the sellers' right to damages had expired because of their conduct following the missed closing date. (1) The arbitral tribunal held that the liability of the purchaser was contractually limited. The argument of the sellers that there was a drafting mistake in the limitation clause was unsupported by the wording of the clause and not justified by an alleged internal contradiction. The tribunal found that the wording of the clause also supported a finding that the clause applied even if termination was executed not on the basis of the clause itself but, as claimed by the sellers, on general principles of Swedish contract law. The tribunal then determined, on the facts of the case, the reimbursable costs. (2) The arbitrators rejected the objection of the purchaser that the sellers' right to damages had expired, finding that, on the contrary, the sellers had made it clear to the purchaser on several occasions, after the missed closing date and onwards, that they considered the purchaser to be in breach of its contractual obligations. The fact that the sellers did not terminate the agreement until one year later did not affect this conclusion.

Yearbook XLVI (2021) pp. 137-141

seat of the arbitration: Stockholm, Sweden

• adaptation of contract
• sale and purchase contract
• breach of contract by failure to pay invoice(s)
• fall in the product’s price
• United Nations Convention on Contracts for the International Sale of Goods (CISG) applied
• Russian law applied
• Cost and Freight (CFR) per INCOTERMS (International Rules for the Interpretation of Trade Terms) (2010)
• currency regulations (Russian Federation)
• rate of interest
• starting date of interest
• calculation of interest
• contractual penalty not punitive/excessive
• arbitration costs in proportion to unsuccessfulness
• legal costs in proportion to unsuccessfulness
• reasonable legal costs

The award dealt with a dispute arising in respect of two orders placed under a contract between the parties, which was governed by the United Nations Convention on Contracts for the International Sale of Goods (CISG) and subsidiarily by Russian law. Delivery was Cost and Freight as per Incoterms 2010.The sole arbitrator upheld the seller's right to full payment of invoices for ordered goods and for interest as contractually agreed. The buyer had paid for delivery of a first lot of goods but had asked the seller to hold the second and first lots until it found end buyers, following a drop in the goods' price, and had then sought to lower the contract price. The sole arbitrator denied the buyer's contentions that it was common industry practice that the terms of specific orders could be revised in response to changing market conditions, and that the seller had misled the buyer into believing that it had agreed to a lower price by its conduct. The sole arbitrator ruled that industry practice and evidence of other instances in which orders had been altered could not override the explicit terms of the contract between the parties, which clearly stated that once an order was placed and accepted, its specific terms formed a binding contract in respect of the agreed quantity and price, and could not be changed without both parties' consent. The contract moreover stated that any difficulties the parties encountered in meeting their obligations under the contract would serve as no excuse for failure to meet those obligations. The sole arbitrator found that the buyer could not infer any agreement on the seller's part to revise the terms of the orders by the seller's agreeing to cancel the second order. The seller had clearly indicated in correspondence that it regarded that cancellation as a favor, and not as a right to be exercised at the buyer's discretion. The buyer also could not rely on the seller's acceptance of partial payment and waiver of penalty fees for late payment of certain invoices as an indication of agreement or a waiver of the seller's rights. The sole arbitrator thus ordered the buyer to pay the outstanding sums for the ordered goods, as well as the costs the seller incurred in relation to the arbitration, the costs of the sole arbitrator, and the fees of the SCC plus accrued and penalty interest. The arbitrator rejected the buyer's claim that the contractually agreed penalty interest rate of 15 percent was too high, given the prevailing 7 to 7.5 percent rate of the Bank of the Russian Federation during the relevant period, pointing out that penalty interest rates often ran considerably higher than normal interest rates. Moreover, the buyer had not provided evidence for its position that it would be possible for the arbitrator, pursuant to the applicable CISG and Russian law, to revise the contractually agreed interest rate.

Yearbook XLVI (2021) pp. 142-146

seat of the arbitration: Stockholm, Sweden

• bad leaver v. good leaver
• Swedish law applied
• leaver provision in shareholders agreement
• obligation to purchase shares of good leaver
• interpretation of contract
• evaluation of evidence
• arbitration costs in proportion to unsuccessfulness
• legal costs in proportion to unsuccessfulness

The award resolved a dispute concerning the interpretation of the terms “Good Leaver” and Bad Leaver”, and the compensation to be paid to a departing CEO and shareholder on his exit from the respondent company, pursuant to a shareholders agreement (SHA) governed by Swedish law. The claimant contended that he had retired from his position as CEO, and was therefore a Good Leaver entitled to compensation of his shares at full market value according to the terms of the SHA. The sole arbitrator instead determined that the claimant had resigned voluntarily, which qualified him as a Bad Leaver. The respondent therefore was not obligated to purchase the claimant's share but had a right to do so if it so wished. According to Swedish law, the definition of the terms “Good Leaver” and “Bad Leaver” fell within the parties' freedom of contract. Where the parties had clearly expressed their joint will in a written agreement, that agreement served as an independent basis for interpretation. The sole arbitrator found that it was clear from the evidence that the SHA had been drafted on the shareholders' joint instruction. She considered that the wording of the relevant clause in the SHA was clear and unambiguous. Moreover, it clearly reflected the general purpose of Good Leaver/Bad Leaver clauses to motivate shareholders to promote the success of a company, so that the circumstances qualifying someone as a Good Leaver – death, illness and redundancy – were all circumstances outside of an individual's control. She therefore deemed it sensible to consider that the parties to the SHA would have wanted to characterize as a Bad Leaver someone who had resigned and subsequently went to work at another company, as the claimant had done. The sole arbitrator further ordered the claimant to pay the respondent's legal costs and the costs of the arbitration.

Yearbook XLVI (2021) pp. 147-151

seat of the arbitration: Stockholm, Sweden

• applicability of arbitration clause to preexisting obligations
• sales and purchase contract
• European Union law applied
• jurisdiction based on arbitration clause in connected contract
• expectation that existing issue be governed by arbitration clause
• burden of proof of damage
• counterclaim

The claimant – a company appointed by the bankruptcy trustee to manage a company in insolvency which produced a certain product – sought payment for a delivery of product under a sales and purchase contract governed by the “substantive law which is valid in the territory of the European Union”. The sole arbitrator granted this claim, which was undisputed, together with interest. He then denied both counterclaims for set-off filed by the respondent: a counterclaim for reimbursement of the costs for registering the product to comply with an EU directive; and a counterclaim for the costs to repair damages to three containers used for transporting the product, allegedly occurred through incorrect handling while the containers were in the custody of the claimant. (1) In respect of the first counterclaim, the registration costs claim, the sole arbitrator held that he lacked jurisdiction. First, the meeting and the telephone call in which the claimant allegedly agreed to take over the managed company's responsibility for compensating the respondent for these costs predated the contract containing the arbitration clause. Hence, the claimant could not have agreed to be bound by a not-yet existing arbitration clause in respect of this responsibility. Second, the conditions for extending the arbitration clause to pre-existing obligations were not met. Pursuant to this “rarely used exception”, an arbitration clause could govern pre-existing obligations not specifically referred to in the clause, where either the contract giving rise to the pre-existing obligation and the contract containing the arbitration clause were so closely connected that it would be nearly impossible to separate the undertakings under both, or it could be assumed that the parties expected all issues, including issues under the previous contract, to be covered by the arbitration clause, even if that assumption was not expressed in any way. This was not the case here: the alleged undertaking to pay the registration costs was not so intertwined or closely connected with the Contract to be covered by the arbitration clause in the Contract without a clear reference, and it could not be assumed that the parties expected a dispute regarding the alleged registration costs undertaking, to be governed by the arbitration clause. (2) In respect of the second counterclaim, the container damages claim, the arbitrator held that he had jurisdiction as the claim was closely connected to the Contract, though not mentioned therein. However, the claim failed on the merits because, on the facts of the case, the respondent could not meet its burden to prove that the containers were damaged whilst under the custody of Claimant.

Yearbook XLVI (2021) pp. 152-158

seat of the arbitration: Stockholm, Sweden

• exclusive distribution agreement
• termination of contract due to breach of contract
• Swedish law applied
• Swedish Commercial Agents Act
• interpretation of contract
• burden of proof
• breach of contract by termination of contract
• notice of damages (claim)
• calculation of damages
• commission fee on future sales
• judicial precedent as to loss of future profits
• discretion of arbitrator to apportion legal and arbitration costs
• legal costs in proportion to unsuccessfulness
• reduction of legal fees
• arbitration costs in proportion to unsuccessfulness
• expedited arbitration

The sole arbitrator decided, in expedited arbitration proceedings, a dispute concerning the manufacturer's premature termination of a distribution agreement governed by Swedish law, and subject in particular to the Swedish Commercial Agents Act. The arbitrator made six findings: (1) according to a general principle of Swedish law with regard to the termination of fiduciary legal relationships – which principle the arbitrator found to be applicable to agency relationships, though not expressly included in the Commercial Agents Act – premature termination ended such a relationship, regardless of whether the termination was justified or not. Hence, the distribution agreement had come to an end here, even if the arbitrator found the termination to be unjustified, since (2) the manufacturer failed to prove that the distributor's breach of contract had been so serious as to justify termination. While the distribution agreement did not contain a seriousness requirement, the Commercial Agents Act contained a mandatory provision that the breach be of material importance for the terminating party. (3) As a consequence, the manufacturer was liable to pay damages to the distributor, because the unjustified premature termination of an agency agreement constituted in principle a breach of contract. In accordance with Sect. 34 of the Commercial Agents Act, however, it was necessary that the other party did not forfeit its right to damages by failing to claim them without unreasonable delay. Here, the distributor added damages to the declaratory relief originally sought only in its fourth submission in the arbitration (Claimant's Submission no. IV – C IV), that is, with unreasonable delay. However, the contents of the letter it timely sent to the manufacturer three weeks after receiving the notice of termination reasonably fulfilled the requirements of Sect. 34, although the letter did not expressly state that the distributor would submit a claim for damages, and referred instead to a claim for sales commissions. (4) The arbitrator then quantified damages. The distributor put forward two separate claims: a performance claim for damages for the period between the termination and C IV, and a declaratory claim for damages for the period between C IV and the contractual expiry of the distribution agreement. As to the declaratory claim, the arbitrator deemed it substantiated that the distributor would have earned at least some sales commissions if the distribution agreement had continued in force, and granted a declaration that the distributor was entitled to damages for that period, equivalent to what it would have received in sales commission minus the related costs. As to the performance claim, the distributor was entitled to damages calculated on the basis of past earnings, but failed to meet the high standard to prove its claim that its earnings would have increased in the relevant period, particularly taking into account the impact of the Covid-19 pandemic on the Utopian economy. (5) The sole arbitrator then found that a clear contractual provision entitled the distributor to an indemnity following the termination of the distribution agreement, equivalent to a two-year commission, minus normal expenses for sale collection and sale-related travel, based on the commissions received during the two preceding years. (6) Finally, the distributor was entitled to penalty interest on the damages and indemnity claims, in accordance with the Swedish Interest Act, as of the date of C IV, the submission in which it raised those claims.

Yearbook XLVI (2021) pp. 159-162

seat of the arbitration: Stockholm, Sweden

• sales and purchase contract (shares)
• conclusion of contract under coercion
• access to bank account
• interpretation of contract
• unjustified expenses in interest of company
• fiduciary duty on bank account

The award concerned a dispute under a contract for the sale by the individual seller of shares in a company he owned. The governing law of the contract was not indicated. (1) The sole arbitrator granted the seller's claim for payment of the last instalment of the purchase price, which was undisputed. The arbitrator then granted the buyer's counterclaims in part. (2) First counterclaim: Subsequent to the share purchase contract, the parties had concluded an amendment agreement lowering the purchase price and altering the payment conditions. The buyer claimed that this agreement was null and void because the buyer had been coerced into entering into it as the sole manner to obtain access to the company's bank account, which the seller was withholding. The sole arbitrator dismissed as “odd” and unsupported by the text of the relevant provision the seller's argument that the contractual obligation to hand over the company's “accounts” on the closing date only referred to the documentary accounts, not to the company's bank accounts. He then found that it appeared from the evidence that the seller had clearly used access to the bank account as leverage to obtain certain earn-out payments, and that the need to resolve that issue had led to the amendment agreement. However, this did not amount to coercion, since the buyer had other means at its disposal to resolve the situation, such as seeking interim relief in SCC emergency arbitration proceedings. (3) Second counterclaim: the arbitrator ordered the seller to reimburse the buyer for monies the seller had undisputedly spent by using the company's bank account, which he could not justify as company expenses – thereby violating the fiduciary duty he had assumed by keeping control of a bank account he had no right to.

Yearbook XLVI (2021) pp. 163-168

seat of the arbitration: London, United Kingdom

• expedited arbitration
• SCC Expedited Rules 2017
• withdrawal of claim
• abuse of process by attempt to withdraw claim
• dismissal for failure to post security for costs
• judicial precedent as to dismissal of claim with prejudice
• legal costs in proportion to unsuccessfulness
• discretion of arbitrators in allocating legal costs
• reduction of legal costs
• discretion of arbitrator to reduce legal costs
• challenge of arbitrator

The sole arbitrator, deciding in expedited arbitration proceedings, held that the claimant was not entitled to withdraw his claim unilaterally. The claimant had refused, without explanation, to comply with both the arbitrator's decision that he give security for costs in accordance with Sect. 39(3) of the SCC Expedited Rules, and with the arbitrator's peremptory order to do so, issued in accordance with Sect. 41(5)-(6) of the English Arbitration Act 1996, the lex arbitri. (1) The arbitrator found that the claimant could not circumvent these provisions by purporting to withdraw his claim. Moreover, the claimant was clearly seeking to put himself in the position where he would be able to bring his claim before a different tribunal. In these circumstances, the claimant's attempt to withdraw his claim constituted an abuse of process and a violation of the obligation, implicit in the agreement to arbitrate under the SCC Expedited Rules, to act efficiently and expeditiously, and ought to be disregarded. (2) The arbitrator then held that the claim should be dismissed as a consequence of the claimant's failure to provide security for costs, in accordance with both Art. 39(3) of the SCC Expedited Rules and Sect. 41(6) of the Arbitration Act 1996. (3) Applying English precedent, the arbitrator dismissed the claim with prejudice, reasoning that to do differently would be an abuse of the procedure of arbitration under the Arbitration Act 1996, and manifestly unfair to the respondent. (4) The arbitrator found that the respondent was entitled to reimbursement of its costs under both the SCC Expedited Rules and the Arbitration Act 1996, in application of the general principle under the Rules that costs follow the event – which was unaffected by considerations of party conduct, as the actions of both parties could be open to criticism and therefore balanced themselves out. (5) The arbitrator found that the costs claimed ought to be reduced to 75 percent: while it had been reasonable for the respondent to engage both leading and junior counsel, and both the time devoted by them to the case and their hourly rates were reasonable, possible excess or duplication of work had to be taken into account. (6) The arbitrator granted the interest claimed by the respondent, 1 percent above the official UK base rate between the date of the award and payment, in accordance with the relevant provision of the Arbitration Act 1996.