Swedish Court of Appeal Upholds Conflicting Award in Parallel BIT Arbitration Proceedings

The well-known saga of Ronald†Lauder's investments in the Czech†Republic, which resulted in parallel†arbitral proceedings being brought†under two applicable bilateral†investment treaties (BITs) in London†and Sweden, has seen an†interesting twist. The Czech†Republic, having been largely†successful in the London†proceedings, challenged the Award†issued in the Swedish proceedings†in which it had been found to be in†breach of the BIT between the†Netherlands and the Czech†Republic. On 15 May 2003 the†Swedish Court of Appeal dismissed†the Czech Republic's challenge.

The factual history giving rise to the†proceedings is a complex one. In essence,†the Swedish Award found that the Czech†Government was responsible for the†"creeping expropriation" of a Lauder-owned†Dutch media company by a Czech†government body over a period of time†through a series of actions and omissions.

The Czech Republic challenged the Swedish†Award on the grounds that, inter alia:

the Tribunal had failed to apply the†applicable law in accordance with the†relevant BIT;

the Czech Republic's arbitrator had been†excluded from the Tribunal's deliberations;†and

the Tribunal had lacked jurisdiction due to†lis pendens and res judicata.

Since the seat of the arbitration had been†Stockholm, the Swedish Court of Appeal†decided that the Award should be reviewed†according to Swedish law taking into account†the relevant principles of international law.†

Relying on European Court of Justice case-law,†the UNCITRAL Model Law and the 1958†New York Convention, the Court stated that†the annulment of an arbitration award should†only take place in exceptional†circumstances. An award could only be set†aside when the Tribunal had applied a†different law to that expressly chosen by the†parties. Mere erroneous application of the†applicable law was insufficient reason to set†aside an award. The BIT had allowed the†arbitrators to "take into account" four†sources of law. The Court considered that†the Award was properly grounded in law as†the arbitrators had principally applied one of†these sources, namely international law. It†found that the BIT itself did not dictate to†what extent and in what order the various†sources should be considered.

The Court rejected the Czech Republic's†argument that its arbitrator had been†excluded from the Tribunal's deliberations,†stating that Swedish law merely required†that arbitrators handle disputes impartially,†expeditiously and promptly. The Court†referred to the...

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