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1 SKÅNE AND BLEKINGE COURT OF APPEAL JUDGMENT CASE No. Department 3 17 June 2010 T Division 32 Malmö APPELLANT Silver Lining Finance SA, [ ] Counsel: Advokat J.K Setterwalls Advokatbyrå Stockholm AB Box Göteborg Counsel: Advokat S.S Setterwalls Advokatbyrå I Göteborg AB Box Göteborg DEFENDANT Perstorp Waspik B.V. [ ] Counsel: Advokat P.A Mannheimer Swartling Advokatbyrå AB Box Helsingborg Counsel: Advokat M.G Mannheimer Swartling Advokatbyrå AB Box Helsingborg 1

2 SUBJECT MATTER Invalidity of arbitral award, etc. THE JUDGEMENT OF THE COURT OF APPEAL The court of appeal rejects the claim of Silver Lining. [...] BACKGROUND Silver Lining is an investment company registered in Luxembourg and Perstorp Waspik is a Dutch-registered company in the chemical industry. Perstorp Waspiks principal activity is the development, production and sale of products to companies in the animal feed industry. Through a share purchase agreement dated 11 March the Share purchase agreement ( SP-agreement ) - the Swedish company Perstorp AB bought all shares of Perstorp Waspik from Silver Lining [...]. According to Article 14 of the SP-agreement, Swedish law is applicable to this agreement. On the same day, 11 March 2005, Perstorp Waspik entered into consultancy agreement with Silver Lining the Management Consultancy agreement ( MC-agreement ). Dutch law applies to this agreement. Furthermore Silver Lining was appointed Director of the Board of Perstorp Waspik. The purchase price for the shares of Perstorp Waspik s consisted primarily of an additional purchase price, the size of which was dependent on the results of the company during a qualification period of three years from the day of the transfer of the shares. According to the SP-agreement, Silver Lining was under certain conditions entitled to request the immediate payment of the additional purchase price for the entire remaining qualification period. In the spring of 2006 Perstorp AB held that certain business relations between Perstorp Waspiks and other companies contained potentially unlawful elements. On 2 November 2006, the Board of Perstorp Waspik decided to immediately terminate the MC-agreement. Perstorp 2

3 Waspik announced its intentions to terminate the MC-agreement effective immediately by a letter of 3 November On 27 November 2006, the General Meeting of Perstorp Waspik decided to dismiss Silver Lining as a Director of the Board of Perstorp Waspik. Arbitration regarding the SP-agreement At the end of the first qualification year the parties could not agree upon the calculation of the additional purchase price relating to the period of qualification. As a result, Perstorp AB initiated arbitration under the SP-agreement in July 2006 against Silver Lining at the Arbitration Institute of the Stockholm Chamber of Commerce [...]. Following the cancellation of the MC-agreement by Perstorp Waspik and the dismissal of Silver Lining from the Board of Perstorp Waspik, Silver Lining requested in that arbitration that Perstorp AB should pay the maximum additional purchase price according to a clause in the SP-agreement relied upon by Perstorp AB. An arbitral award was rendered on 20 December The award has been challenged by Silver Lining and the action is pending before the Svea Court of Appeal (T ). The arbitration award of the present proceedings On 13 March 2007, Perstorp Waspik initiated arbitration proceedings under the MCagreement against Silver Lining and two of the directors of Perstorp Waspik, F.S and A. S-F. The award was rendered on 27 April A separate award on the advance costs was rendered on 30 June This award was challenged by Silver Lining, F.S and A. S-F. The challenge procedure is pending before the Svea Court of Appeal (T ). An additional separate award on the advance costs was rendered on 27 December This award has also been challenged by Silver Lining, F.S and A. S-F and is handled by the Svea Court of Appeal (T ) together with the other two cases. 3

4 Proceedings before Dutch courts In addition to the proceedings and arbitrations mentioned above, a number of court proceedings have been and are still pending in the Netherlands. These proceedings focus on among other things the issue of whether the MC-agreement has been unlawfully cancelled by Perstorp Waspik ( Issue of Cancellation ), and whether the decision to dismiss Silver Lining as director of the company is valid (the Issue of Dismissal ). Perstorp Waspik has objected and stated that these issues are subject to the arbitration clauses in the SP- and MCagreements and therefore may not be decided by [the] court. On 1 August 2007, the Regional Court of Breda, Netherlands, rendered a decision regarding the question of whether the court had jurisdiction of the Issue of Cancellation and the Issue of Dismissal. The court decided in a supplementary decision of 12 September 2007 that the proceedings should be stayed until the arbitration proceeding in Stockholm regarding the SPagreement and the arbitration proceeding in Malmö regarding the MC-agreement had been terminated. Silver Lining challenged the decisions as far as Silver Lining had not been successful, e.g. the court s decision to accept the objection relating to the Issue of Cancellation. This issue was decided by the Court of Appeal of s-hertogenosch in the Netherlands, and a judgment was rendered on 6 January Following a request from Perstorp Waspik to enforce a claim according to the now challenged award at the regional court of Breda, and Silver Lining, F.S. and A.S-F. having contested the application, the regional court decided the issue of enforcement on 28 April CLAIMS ETC. Silver Lining has requested that the Court of Appeal declare that the award of 27 April 2009 is void as far as concerns decisions under items no (2)(b), 10(.1.1(29(c), and and, in the alternative, that the Court of Appeal shall declare that these sections of the award shall be set aside. Perstorp Waspik has objected to Silver Lining s claims. 4

5 Silver Lining has also requested that the Court of Appeal shall order Perstorp Waspik to compensate Silver Lining s costs of the arbitration and declare that Perstorp Waspik as between the parties shall bear the cost of the the arbitrators fees. Perstorp Waspik has contested these claims. The parties have claimed compensation for their costs of the court proceedings. In the event that the Court of Appeal approves Silver Lining s claim on invalidity and setting aside, Perstorp Waspik holds that that the Court of Appeal should not decide the issue of liability and designation of the arbitration costs. In this context Perstorp Waspik has argued that it does not fall within the competence of a court that declares an award invalid to render a new decision on the issue of compensation. In any event Perstorp Waspiks argues that the Court of Appeal may not decide the issue of liability and designation of the arbitration costs regarding all costs of the arbitration proceedings since Silver Lining s claim in this case concerns the award only and in addition to this fact only part of the same. GROUNDS Silver Lining By its decision the arbitral tribunal has found that Perstorp Waspik has had valid cause to cancel the MC-agreement (and therefore need not pay any fees after the cancellation of the agreement). In this part (and in parts where this decision effects the outcome, i.e. sections listed under claimant s claim) the award includes decision on the Issue of Cancellation. This issue however is not arbitrable. As the award as a result includes determination of an issue which may not be decided by arbitrators, the award is invalid. For the same reasons, the award should be set aside. According to Section 1 of the [Swedish] Arbitration Act, disputes concerning matters in respect of which the parties may reach a settlement may be referred to arbitration. Disputes of which parties may not dispose may not be made subject to arbitration. The issue of cancellation is an issue as regulated by Article 22 (2) of the Brussels I Regulation, i.e. an action regarding the validity of a decision by a legal entity with its seat in the Netherlands. The Brussels I Regulation has so-called direct effect in Sweden and therefore 5

6 constitutes an integral part of Swedish law. According to Article 1 d), the Brussels I Regulation does not apply to arbitration. The consequence of the binding provision in Article 22(2) of the Brussels I Regulation is that Swedish courts lack jurisdiction on issues regulated in this provision. It is therefore not possible to enter into a binding agreement which stipulates that disputes as defined in Article 22 (2) of the Brussels I Regulation shall be referred to Swedish courts, notwithstanding if the seat [of the legal entity at hand] has its seat in another member state. Parties may not dispose over issues regulated in Article 22 (2) of the Regulation. The award is invalid under Section 33, para.1 of the [Swedish Arbitration Act] since it includes determination of an issue which is not arbitrable under Swedish law. Furthermore, the award is invalid under Section 33 para.2 of the [Swedish Arbitration Act] as the award as a consequence is manifestly incompatible with the fundamental principles of Swedish law. The Arbitral Tribunal has rendered an award on an issue regulated by Article 22 (2) in the Brussels I Regulation, notwithstanding the fact a valid arbitration agreement may not be entered into on the Issue of Cancellation, and the award shall therefore be set aside with reference to Section 34 para. 1 (1) of the [Swedish Arbitration Act]. The award may also be set aside under Section 34 para.1 (2) of the [Swedish Arbitration Act] since the Arbitral Tribunal has exceeded its mandate. Perstorp Waspik The challenged award does not contain determination of an issue which may not be decided by arbitrators under Swedish law. The award is subject to a valid arbitration agreement between the parties. The manner in which the award has been made is not manifestly incompatible with the fundamental principles of Swedish law. The Arbitral Tribunal has not exceeded its mandate. The award is therefore not invalid according to 33 of the [Swedish Arbitration Act] and may not be set aside under 34 of the [Swedish Arbitration Act]. 6

7 POSITION OF THE PARTIES The parties have argued the following. Silver Lining According to Section 1 of the [Swedish Arbitration Act], disputes concerning matters in respect of which the parties may reach a settlement may be referred to arbitrators. Issues over which the parties may not dispose may not be referred to arbitration. In the preparatory works of the of the [Swedish Arbitration Act] it is stated that where the question arises of whether foreign law contains provisions which in effect means that the parties may not reach a settlement in respect of a certain matter before a Swedish court, the matter must be resolved on a case-by-case basis. Article 22 of the Brussels I Regulation contains the following binding provision: The following courts shall have exclusive jurisdiction, regardless of domicile: [..] 2 in proceedings which have as their object the validity of the constitution, the nullity or the dissolution of companies or other legal persons or associations of natural or legal persons, or of the validity of the decisions of their organs, the courts of the Member State in which the company, legal person or association has its seat. [...] The Issue of Cancellation is a proceeding as described in Article 22 (2) of the Brussel 1 Resolution, i.e. a proceedings regarding the validity of a decision made by a legal person domiciled in the Netherlands. The Brussels I Regulation has a so-called direct effect in Sweden and therefore constitutes an integrated part of Swedish law. According to Article 1 d) of the Brussels I Regulation, the Regulation does not apply to arbitration. The effect of the binding provision of Article 22 (2) of the Brussels I Regulation is that Swedish courts are not competent to decide matters as defined in that provision. It is therefore not possible to enter into a binding agreement which stipulates that disputes as defined in Article 22 (2) of the Brussels I Regulation shall be referred to Swedish courts, notwithstanding if the seat [of the legal entity at hand] has its seat 7

8 in another member state. Parties may not dispose over issues regulated in Article 22 (2) of the Regulation. The binding provisions of the Regulation has been circumvented by the parties through an arbitration agreement which stipulates that disputes concerning matters listed in the Article 22 (2) of the resolution shall be referred to a arbitrators. Arbitration agreements to this effect are invalid as the parties may not dispose over such issues under Swedish law, and because to permit such circumventing effect would be manifestly incompatible with the fundamental principles of Swedish law, of which the Brussels I Regulation represents an integrated part. The Issue of Dismissal and the Issue of Cancellation should both be decided by Dutch courts. The Arbitral Tribunal is prevented from deciding the issues of Dismissal and Cancellation as a pre-judicial issue. In its reasoning, the Arbitral Tribunal is required to adhere to decisions on preliminary matters which concern pre-judicial legal matters, while such adherence is not required for other preliminary matters. Once a valid decision concerning the preliminary issues of relevance for this case has been rendered, the parties are prevented from re-opening the same issues in conjunction with the challenged arbitration proceeding. The issues of Dismissal and Cancellation therefore constitute preliminary issues on pre-judicial legal matters and hence the Arbitral Tribunal is bound by and must await - a legally valid decision in both these matters. This fact gains support from the statements of Dutch courts which are of the opinion that they constitute exclusive fora to decide the Issue of Cancellation. Even if the Arbitral Tribunal concludes that a valid reason to cancel the agreement exists on contractual grounds, this decision may be set aside by a court in the Netherlands if the court finds that such conclusion lacks support in corporate law. The decision by Arbitral Tribunal, that there is no right to compensation under the MC-agreement after the termination of the agreement, was premature since a final decision in this respect may be made only after an opinion from the Dutch court on the validity of the termination of the MC-agreement. 8

9 Perstorp Waspik The [Swedish Arbitration Act] applies to all arbitral proceedings in Sweden. In the case at hand the issue of whether a dispute contains an international element is irrelevant. The award was rendered in Sweden and the proceedings which preceded the award should be deemed having taken place in Sweden. The proceedings and associated procedural issues should therefore be decided in accordance with Swedish law. The Arbitral Tribunal has decided the Issue of Cancellation in the arbitration under the SPagreement since this issue has constituted part of deciding Silver Lining s claim that Perstorp AB shall pay the maximum Additional Purchase Price for the period after November 2006 until the end of the relevant three-year-period. The question thus arises whether this issue is arbitrable. This is to be decided according to Swedish law and the Issue of Cancellation is arbitrable. All issues now challenged by Silver Lining are eligible for determination by arbitrators under Swedish law. In the arbitration now discussed as well as the proceeding under the SPagreement, Perstorp Waspik and Perstorp AB have argued that the actions performed by Silver Lining, F.S and A. S-F, which constituted valid ground for cancellation and dismissal, qualifies as criminal acts under Dutch criminal law, e.g. counterfeiting and money laundering. Neither the right of cancellation nor dismissal requires the existence of a criminal act. Instead, these rights may be invoked upon breach of for ex. Dutch civil law, principles of corporate governance and inappropriate or unprofessional behaviour. The fact that the reasons of the award mention issues over which the parties may not dispose does not affect the issue of arbitrability. As reasons do not gain status as res judicata in a succeeding court procedure regarding an issue over which the parties may not dispose, the Arbitral Tribunal is not prevented from discussing issues which concern the rights of third parties or public interest in the reasons. Silver Lining argues that the arbitration agreement between the parties is invalid, first, because parties may not dispose over issues as defined in Article 22 (2) of the Brussels I Regulation, and, second, because the provisions of the Regulation are circumvented by an arbitration agreement [which targets] issues covered by these provisions (as the Brussels I 9

10 Regulation does not cover arbitration) and that such circumvention violates ordre public. Perstorp Waspik rejects both arguments. As for the statement that it would constitute a violation of ordre public to enter into an arbitration agreement concerning issues covered by Article 22 (2) of the Brussels I Regulation it is held that the Brussels I Regulation does not apply at all in relation to the Issue of Cancellation. The provision of Section 33 para.2 of the Swedish Arbitration Act applies in such rare circumstances as where an arbitral award contains orders which constitute gross violations of fundamental procedural principles. In the opinion of Perstorp Waspik, this provision does not apply in relation to facts as invoked by Silver Lining and the award may therefore not be declared invalid on this ground. Silver Lining has not further elaborated on in which way the Arbitral Tribunal has exceeded its mandate. In summary, Perstorp Waspik holds that the Issue of Cancellation constitutes an arbitrable issue, that the issue is covered by a valid arbitration agreement between the parties, that the challenged award, by its referral to the said issue, has not been produced in a manner which violates ordre public, and that the issue therefore is covered by the mandate of the Arbitral Tribunal as defined by the parties. REASONS The parties have relied on documentary evidence. [...] Section 46 of the [Swedish Arbitration Act] states that the Act applies to arbitral proceedings which take place in Sweden notwithstanding the fact that the dispute has an international connection. The current proceeding has taken place in Sweden and the challenged award has been rendered in Sweden. The Court of Appeal therefore finds that the [Swedish Arbitration Act] applies for the assessment of whether the issues decided by the Arbitral Tribunal have been arbitrable or not. The proceedings and any procedural issue in connection with the proceedings are therefore subject to Swedish law. A ground for invalidity thus applies only 10

11 where an issue is non-arbitrable under Swedish law (ref. Lindskog, Stefan: Skiljeförfarande, En kommentar, 2005, p. 902). At the forefront of this case is the potential application of Dutch law where Silver Lining claims that certain binding provisions of said law means that the dispute concerns matters over which the parties may not dispose and that the Arbitral Tribunal has decided matters in respect of which the parties may not reach a settlement, as required by the [Swedish Arbitration Act]. Silver Lining has further argued that the circumventing effect of such agreements [...] would be manifestly incompatible with the fundamental principles of Swedish law, of which the Brussels I Regulation forms an integrated part. The primary prerequisite to decide the issue of arbitrability is, according to Section 1 para. 1 of the [Swedish Arbitration Act], that the arbitration agreement concerns matters in respect of which the parties may reach a settlement, i.e. issues over which the parties may dispose. The preparatory works of the [Swedish Arbitration Act] (SOU 1994:81 page 79) states that the issue of whether foreign law shall be deemed binding with the effect that a settlement may not be reached before a Swedish court, must be decided on a case by case basis. The legislator emphasizes that the binding character of a financial-political legislation in a foreign state should as a general rule not apply when deciding the issue of whether a certain matter is capable of settlement, and thereby arbitrable, under Swedish law. The Court of Appeal agrees with the position of the Arbitral Tribunal that the MC-agreement is an agreement between Perstorp Waspik and Silver Lining in matters which the parties may dispose over by contract. Essentially, the arbitration at hand has included determination of the contractual issues under the MC-agreement. In addition, the Arbitral Tribunal has been competent to decide the Issue of Cancellation as a pre-judicial matter taking into account the relevant underlying agreements (see Bolding, Per Olof, Skiljedom, 1956, p. 41 and Heuman, Lars, Skiljemannarätt, 1999, p. 94). The Brussels I Regulation governs the competence as between courts and shall according to Article 1(d) not apply to arbitration. The position of Silver Lining that the arbitration agreement constitutes a circumvention of the the Brussels I Regulation and is manifestly 11

12 incompatible with the fundamental principles of Swedish law, is unfounded. This claim is therefore dismissed by the Court. Silver Lining has not referred to any circumstance which would constitute ground for setting aside of the award under Section 34 para. 1 (2) of the [Swedish Arbitration Act]. As a result of the above, Silver Lining s claims shall be dismissed. [...] 12

DECISION OF THE SUPREME COURT OF SWEDEN

DECISION OF THE SUPREME COURT OF SWEDEN rendered in Stockholm on 12 November 2010 Case No. Ö 2301-09 APPELLANT RosinvestCo UK Ltd 6-8 Underwood Street N1 7JQ London Great Britain Counsel: Attorneys-at-law