In an ad hoc arbitration under the Arbitration Act, the arbitral tribunal should decide the compensation for its work and expenses. Section 37 of the Arbitration Act provides that arbitral tribunals must be paid reasonable compensation, which should be determined based on the nature and the scope of the arbitrators' work. In this regard, the time spent and competence in the field in question must be taken into consideration.(1) However, Section 37 is non-mandatory and may be altered or waived by the parties' agreement (eg, by reference to institutional rules).
A successful challenge of an arbitral award does not set aside a decision regarding arbitrators' compensation. To reduce such compensation, a party must bring a separate action under Section 41 of the Arbitration Act within two months of the party receiving the award.(2)
Whereas arbitral award challenges are considered by a court of appeal in the jurisdiction where the arbitral proceedings were held, an action against a compensation decision in an award is considered by a district court in the place of arbitration. Section 41 of the Arbitration Act applies not only to decisions made by arbitrators themselves, but also to decisions that are made by arbitral institutions and included, in one form or another, in the arbitral award.(3)
In Australian Media Properties Pty Ltd v JR, the Svea Court of Appeal tried an action against an arbitrator, JR, in a Stockholm Chamber of Commerce (SCC) arbitration concerning JR's compensation, which the SCC had determined.(4)
Australian Media Properties commenced arbitration proceedings under the SCC Rules against Bonnier International Magazines AB regarding the scope of certain licences. Bonnier International Magazines had appointed JR as one of three arbitrators on the tribunal. Australian Media Properties' claim in the arbitration was denied. As such, it was ordered to pay compensation to Bonnier International Magazines for unpaid licence fees and was held liable to pay the entire costs of the arbitration, including the arbitrators' compensation. The SCC had decided the arbitrators' compensation and this decision was included in the arbitral award.
Australian Media Properties challenged the award before the Svea Court of Appeal and appealed the decision regarding JR's compensation to the Stockholm District Court.(5) In its actions, Australian Media Properties argued that there were circumstances which gave rise to doubts as to JR's impartiality and independence as an arbitrator because, in one way or another, he had been associated with companies within the Bonnier Group.
The Svea Court of Appeal rejected the challenge of the arbitral award. The proceedings regarding the compensation decision, which were stayed pending the outcome in the challenge proceedings, were resumed. The Stockholm District Court – and subsequently the Svea Court of Appeal – rejected Australian Media Properties' action against the compensation decision. Although the two courts reached the same decision, they applied different reasoning.
The Stockholm District Court concluded that cases regarding the reduction of arbitrators' compensation should be determined based on whether the compensation is reasonable with regard to the scope and nature of the arbitrator's assignment and how the assignment was carried out. According to the district court, allegations regarding arbitrator bias should be tried in a case challenging the award or in a case regarding an arbitrator's liability for damages. Since Australian Media Properties had not invoked that JR had performed less work than he had been compensated for or that his assignment had been poorly carried out, the district court rejected the company's action brought under Section 41 of the Arbitration Act.
The Stockholm District Court judgment was appealed to the Svea Court of Appeal.
The Svea Court of Appeal held that the examination criteria differ depending on whether the decision is made by arbitrators themselves or an arbitral institution. According to the court, an action against a decision made by arbitrators themselves should be assessed based on whether the compensation is reasonable, while the assessment of an action against a decision made by an arbitral institution should be based on whether the grounds invoked by the claimant warrants a deviation from the agreement between the parties that the arbitral institution shall determine the compensation according to the arbitral institution's rules referred to in the arbitration clause.
Since the SCC had decided the arbitrators' compensation in this case, the court of appeal tried whether the SCC's decision could be adjusted according to the general principles of contract law.
The court of appeal noted that neither legislation nor case law support the view that the existence of circumstances which may diminish confidence in the arbitrator's impartiality, or failure to disclose such circumstances, can alone justify a reduction in arbitrators' compensation. The court of appeal further stated that:
- there must be strong reasons for deviating from what has been agreed between the parties in respect of such compensation; and
- the existence of circumstances which may diminish confidence in the arbitrator's impartiality cannot alone constitute a reason for adjusting an arbitration institute's decision.
Therefore, the court of appeal denied Australian Media Properties' action under Section 41 of the Arbitration Act.
Although parties have the right to appeal arbitrators' compensation that has been decided by an arbitral institution and included in an arbitral award, the Svea Court Appeal's judgment suggests that strong reasons are required to adjust such a decision when it has been made in accordance with an arbitration agreement between said parties. Further, the existence of circumstances which could diminish confidence in an arbitrator's impartiality is insufficient to justify a reduction in compensation.
The court of appeal's judgment was appealed, but the Supreme Court did not grant leave to appeal.
For further information on this topic please contact Fredrik Norburg or Catarina Rivero Lira at Norburg & Scherp by telephone (+46 8 420 035 00) or email ([email protected] or [email protected]). The Norburg & Scherp website can be accessed at www.norburgscherp.se.
Endnotes
(1) Supreme Court, 22 October 1998 (Case T 105-98) (NJA 1998, p 574).
(2) The Arbitration Act was recently revised, and the changes are expected to come into force on 1 March 2019. Among the changes, the time limit in Section 41 will be shortened from three to two months, which is in line with the time limit for challenging an arbitral award under the amended rules. Older provisions should still apply to arbitration proceedings that commenced before 1 March 2019. For further details regarding the changes, please see "Stricter rules on challenges in proposed Arbitration Act revisions".
(3) Supreme Court, 3 December 2008 (Case Ö 4227-06) (NJA 2008, p 1118).
(4) Svea Court of Appeal, 16 October 2018 (Case T 6862-17).
(5) Australian Media Properties also appealed the compensation decision with respect to the chair, but the company revoked the appeal after the challenge of the arbitral award was denied and therefore the case was dismissed.
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