IBA SUBCOMMITTEE ON RECOGNITION AND ENFORCEMENT OF ARBITAL AWARDS

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Amos Owens
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1 IBA SUBCOMMITTEE ON RECOGNITION AND ENFORCEMENT OF ARBITAL AWARDS 2016 Research Project: Comparative Study of Arbitrability under the New York Convention Questionnaire for the Country Reporters The grounds for recognising, enforcing and setting aside arbitral awards are regulated in the Finnish Arbitration Act (967/1992). The rules of recognition and enforcement of domestic and foreign arbitral awards have been divided into separate sections. Section 40 of the Arbitration Act regulates grounds for declaring a domestic arbitral award null and void. Pursuant to this Section, an award shall be null and void to the extent that the arbitrators have in the award decided an issue not capable for settlement by arbitration under Finnish law. Thus, a domestic arbitral award can be declared null and void based on the nonarbitrability of the subject matter. In respect of recognizing and enforcing foreign arbitral awards, the recognition and enforcement is regulated in Sections of the Arbitration Act. Pursuant to Section 52: An arbitration award which has been rendered in a foreign state by virtue of an arbitration agreement made in compliance with section 3 1 or of a provision referred to in section 4 2 shall be recognized in Finland, unless otherwise provided for below. An arbitration award referred to in subsection 1 shall, however, not be recognized to the extent that it is contrary to the public policy of Finland. To a large extent, the rules correspond to the rules stipulated in the New York Convention. However, contrary to the recognition and enforcement of domestic awards, non-arbitrability, as such, is not considered as grounds for refusing the recognition and enforcement of foreign awards ex officio in the Finnish Arbitration Act. It has been stated in the preparatory works of the Arbitration Act (Government Bill 202/1991) that incorporating a section similar to the Article V (2) (a) of the New York Convention to the Finnish Arbitration Act is not deemed to be necessary. Thus, refusing the recognition of foreign arbitral awards ex officio based on the non-arbitrability of the question in dispute under the laws of the enforcing state (i.e. Finland), is not considered justified. However, if the arbitral award due to the non-arbitrability of the subject matter is contrary to the public policy of Finland, the recognition of the award is refused ex officio. Section 53 stipulates grounds for refusing recognition of a foreign award that can be invoked by the other party. Pursuant to the said Section the arbitral award shall not be recognised if the party presents proof that e.g.: 1 I.e. made in writing. 2 "Arbitration clauses in wills, deeds of gifts, bills of lading or documents that correspond to these, in the bylaws of an association or of a foundation, in the articles of association of a limited liability company or of another company or of a corporate entity and by which the parties or the person against whom a claim is made are bound, shall have the same effect as arbitration agreements."

2 (1) he or she did not have the capacity to enter into the arbitration agreement or that he or she was not properly represented when the arbitration agreement was entered into, or that an arbitration agreement made in the manner referred to in section 3 is not, for a reason other than the form of the arbitration agreement, valid under the law to which the parties have subjected it, or if no conclusions can be drawn regarding what law the parties have intended to have applied, under the law of the state where the award was rendered; [ ]. 3 In conclusion, according to the Arbitration Act public policy is the only basis for courts to refuse to recognize foreign awards ex officio. As mentioned, if the arbitral award is contrary to the public policy of Finland because of the non-arbitrability of the subject matter, the court must refuse the recognition ex officio. In addition, a party can invoke the abovementioned Section 53 of the Arbitration Act. If the party presents proof that the arbitration agreement for a reason other than the form of the arbitration agreement (e.g. non-arbitrability), is not valid under the law to which the parties have subjected it or if no conclusions can be drawn regarding what law the parties have intended to have applied, under the law of the state where the award was rendered, the arbitral award is not recognized by the deciding court. Thus, the non-arbitrability of the subject matter under the law to which the parties have subjected the arbitration agreement or the law of the state where the award was rendered, when invoked, can result in the award not being recognized. There is relatively little legal praxis available on arbitrability in relation to recognition and enforcement of arbitration agreements and arbitral awards. Thus, the limited amount of case law does not provide significant support for this Questionnaire. 1. How do courts in your jurisdiction define the notion of arbitrability when applying the New York Convention? (a) Do they make a distinction in defining the notion for the purposes of Article II (1) of the New York Convention ( a subject matter capable of settlement by arbitration ), of Article II (3) (... unless it finds that the said agreement null and void, inoperative or incapable of being performed ) and of Article V (2) (a) ( The subject matter of the difference is not capable of settlement by arbitration under the law of that country )? The arbitrability is defined slightly differently when it comes to the abovementioned provisions. Article II (1) and Article II (3): Articles II (1) and II (3) relate to recognition of arbitration agreements and are implemented in Finland through Section 51 of the Arbitration Act. According to this Section, a Finnish court cannot hear a case if the respondent invokes an arbitration agreement before responding to the main claim, unless the arbitration agreement is null and void under the law applicable to it. For instance, if the subject matter is not arbitrable according to the law applicable to the 3 Arbitration Act Section 53(1).

3 arbitration agreement, the arbitration agreement can be declared null and void. However, the wording of the Section 51 does not specifically mention arbitrability. The question of validity of the arbitration agreement and whether it is binding and recognizable usually becomes relevant as a separate question in the proceedings when considering whether the arbitration agreement causes procedural bar. In conclusion, the Finnish courts do not make a distinction in defining the notion of arbitrability for the purposes of Articles II (1) and II (3). Article V (2) (a): Contrary to Articles II (1) and II (3) above, Article V (2) (a) relates to recognition and enforcement of arbitral awards. As stated above, the non-arbitrability of the subject matter under Finnish law is not grounds for courts to refuse to recognize foreign arbitral awards unless it is simultaneously contrary to public policy. The non-arbitrability of the subject matter can be, however, invoked by the other party as elaborated above. In this case, it is to be noted that the non-arbitrability is assessed in accordance with the law chosen by the parties or the law of the state where the award was rendered, not the law of the deciding court. (b) Do they make a distinction between subjective arbitrability (capacity of a person to be party to an arbitration) and objective arbitrability (capacity of a subject matter to be resolved by arbitration)? The courts in Finland do make a slight distinction between the subjective and objective arbitrability. Subjective arbitrability: The subjective arbitrability is stipulated clearly in the abovementioned Section 53 of the Finnish Arbitration Act. Pursuant to the said Section, if a party presents proof that the party did not have the capacity to enter into the arbitration agreement, the arbitral award shall not be recognised. This means that in respect of the subjective arbitrability the party must invoke the non-capacity of being a party to the arbitration for courts to refuse the recognition of foreign arbitral awards. Objective arbitrability: In relation to the objective arbitrability the situation is slightly different. Pursuant to the New York Convention the capacity of a subject matter to be resolved by arbitration is a question that the courts must consider ex officio. As stated above, the Finnish Arbitration Act does not provide non-arbitrability of the subject matter as grounds for refusing to recognize foreign arbitral award unless the award due to the non-arbitrability is contrary to the public policy of Finland. However, the party can invoke the same provision as stated above in relation to the subjective arbitrability in case he/she is of the opinion that the subject matter is non-arbitrable. The main difference is that the non-arbitrability is considered in relation to the law to which

4 the parties have subjected the arbitration agreement or the law of the state where the award was rendered. 2. Do the courts in your jurisdiction consider that arbitrability is a condition of validity of the arbitration agreement, or rather a requirement for the jurisdiction of the arbitral tribunal? The objective arbitrability is primarily considered to be a requirement for the jurisdiction of the arbitral tribunal. Objective arbitrability may, however, also materialise as a question regarding validity of the arbitration agreement. This would be the case if proceedings are initiated in a Finnish court, the respondent invokes an arbitration agreement as a procedural bar and the claimant claims that the arbitration agreement is invalid because the subject matter is not capable of settlement by arbitration, i.e. not arbitrable, according to the law applicable to the arbitration agreement. The subjective arbitrability, on the other hand, is a question of a condition of validity of the arbitration agreement. 3. Applicable law (a) Which law do the courts in your jurisdiction apply to assess the arbitrability or non-arbitrability of a dispute at the stage of recognizing and enforcing the arbitration agreement and referring (or not) the dispute to arbitration (Article II NY Convention)? The lex fori (law of the deciding court)? The law of the place of arbitration? The lex contractus? Another law? The arbitrability of a dispute at the stage of recognizing and enforcing the arbitration agreement is pursuant to Section 51 of the Arbitration Act assessed in accordance with the law applicable to the arbitration agreement. On the other hand, the arbitrability of a dispute at the stage of recognizing and enforcing the arbitral award is assessed in accordance with the law of the deciding court i.e. in accordance with the Finnish law when the foreign arbitral award is contrary to the public policy of Finland due to the non-arbitrability of the subject matter. If the public policy provision is not applied, the law to which the parties have subjected the arbitration agreement i.e. lex contractus, is applicable. If no conclusions can be drawn regarding what law the parties have intended to have applied, the law of the state where the award was rendered is applicable. (b) Is there a difference of approach when assessing subjective and objective arbitrability? Objective arbitrability: As stated above in 3(a), pursuant to Section 51 of the Arbitration Act, the objective arbitrability in respect of recognizing and enforcing the arbitration agreement is evaluated according to the law applicable to the arbitration agreement.

5 On the other hand, the objective arbitrability in respect of recognizing and enforcing arbitral awards is evaluated according to the Finnish law (law of the deciding court) if the arbitral award due to the non-arbitrability of the question in dispute is against the public policy of Finland. Otherwise, the objective arbitrability is assessed in accordance with law chosen by the parties or the law of the state where the award was rendered. Subjective arbitrability: When assessing the subjective arbitrability, the law applicable is decided based on the rules of conflict of laws. 4. Substantive content of arbitrability/non-arbitrability (a) In your jurisdiction, does statutory or case law set a general standard for assessing whether a dispute is arbitrable or not? Pursuant to the Finnish Arbitration Act Section 2, Any dispute in a civil or commercial matter which can be settled by agreement between the parties may be referred for final decision to be rendered by one or more arbitrators. Thus, any civil or commercial dispute where the parties can come to a settlement is generally arbitrable under Finnish law. However, international disputes falling outside of the scope of said provision can still be arbitrable unless the award due to the non-arbitrability is contrary to the public policy of Finland. See above. (b) If there is a statutory source for arbitrability in your jurisdiction, please indicate it below (if not, indicate non-applicable ): (c) Which disputes are held to be non-arbitrable under the statutory or case law of your jurisdiction? In general, the abovementioned Section 2 of the Arbitration Act covers a variety of disputes. Thus, the scope of the disputes that are held to be non-arbitrable is relatively narrow. The Finnish Arbitration Act, lacking a provision similar to the Article V (2)(a) of the New York Convention, enables even wider range of international disputes to be considered arbitrable. In Finland usually disputes that include a powerful public social interest are held nonarbitrable. Among other things, criminal matters, administrative matters and some family matters are the most usual ones.

6 5. Table of cases Please append to the report a table of cases where arbitrability was addressed in the specific context of the New York Convention, based on the following template: Case designation The Supreme Court of Finland, 27 February 1989 (KKO 1989:24) NY Convention Provision (II.1; II.3; V.2.a) Summary of ground for objecting to arbitrability of the dispute V.2.a The defendant argued that enforcement of the arbitral award would factually decide what property belonged to a Finnish bankruptcy estate, which, according to the defendant, could not be settled by arbitration under mandatory Finnish law. Also, according to the defendant, it was not possible under Finnish law to settle by arbitration whether a clause regarding retention of title is binding. Hence, the defendant claimed that enforcement would be against article V.2.a of the NY Convention. Arbitrability objection admitted Arbitrability objection rejected X The Helsinki Court of Appeal, 14 October 2013 (HelHO 13/433) The Supreme court, dismissing the defendant's claims, found that the arbitral award was in fact an award regarding a monetary debt. The court did not find any facts supporting the claim that the arbitral award was against Article V.2.a of the NY Convention. V.2.b The claimant argued that, as an arbitration clause had been agreed between a consumer and a company before the dispute had arisen, collection of the consumer receivable in arbitration proceedings was against Latvian consumer protection legislation (seat of arbitration), the Finnish Consumer Protection Act (lex fori) and the Council Directive on unfair consumer contracts (93/13/EEC). X The Finnish Arbitration Act does not contain any specific provisions on arbitrability regarding the enforcement of foreign arbitral awards. However, in this case, the fact that the dispute would not have been arbitrable under Finnish law attributed to enforcement being rejected as contrary to Finnish public policy. It should, however,

7 be noted that the fact that a matter would not be arbitrable under Finnish law does not, as such, make it contrary to public policy. Drafted by Castrén & Snellman Attorneys Ltd Krogerus Attorneys Ltd Helsinki, Finland Helsinki, Finland Marko Hentunen Thomas Kolster Partner Senior Associate marko.hentunen@castren.fi thomas.kolster@krogerus.com

IBA SUBCOMMITTEE ON RECOGNITION AND ENFORCEMENT OF ARBITAL AWARDS

IBA SUBCOMMITTEE ON RECOGNITION AND ENFORCEMENT OF ARBITAL AWARDS 2016 Research Project: Comparative Study of Arbitrability under the New York Convention Questionnaire for the Country Reporters GESSEL