The strengthened case for Swedish law and Swedish arbitration in times of uncertainty Swedish Embassy, Moscow, 7 December 2016
Sweden – from warrior to welfare state
Sweden once was one of Europe’s leading military powers…
…but was defeated and adopted a policy of neutrality
…which proved to be a blessing for the country
…and led to the development of a welfare society
…and support for a “ t hird way” foreign policy
Swedish law and arbitration in Soviet era trade
How it all began… • Need for neutral law and seat of arbitration in East-West trade contracts • Sweden was one of few developed and neutral countries • Swedish law respected contracts and was pro arbitration • Sweden had an established arbitration institution (SCC) • Critical mass of dispute resolution lawyers with foreign language skills (including Russian) • Result: the 1977 US-USSR Optional Clause Agreement
Sweden came to dominate East-West disputes • Swedish law and Stockholm arbitration became the main options in Soviet era trade contracts • A whole generation of Soviet foreign trade lawyers were trained in Swedish law and Stockholm arbitration • Arbitration in Stockholm and the Swedish arbitration community became more international and accustomed to dealing with foreign parties
English influence in the post-Soviet landscape
Rule Britannia became the norm in Russia… • Neither shared colonial past nor similarities in legal systems, but: • London re-emerged as a global financial centre in 90s • English law and dispute resolution in London actively promoted by successive U.K. governments • Massive expansion of English law firms into the Russian market • Extensive use by Russian businessmen of London and British Overseas Territories as foreign base for Russian operations
…but Sweden has managed to keep a foothold • Actually, the number of CIS-related arbitrations in Stockholm has grown since the Soviet days (in 2015, cases involving approx. 60 parties from the CIS were registered at the SCC) • However, Sweden is behind England on the market, which has grown exponentially since the Soviet days • In particular, English law and dispute resolution in London dominate M&A and financial transactions related to Russia
Is there a paradigm shift on the horizon?
Trends in the choice of law and forum for disputes • The importance of political and legal stability • The importance of a modern approach to contracts that reflects contemporary commercial realities • The importance of minimizing cost and reducing the length of legal proceedings while maintaining quality • These factors speak in favour of using Swedish law and Stockholm arbitration in international commerce
The importance of political and legal stability
Political and legal stability are in short supply… • In particular in turbulent times, it is important to consider not only how a possible law and forum look at the moment, but also several years from now when a dispute may arise • No revolutionary changes are expected to the Swedish legal system • The English legal system, on the other hand, will undergo one of the most complex and unpredictable transformations ever embarked upon • What will the English legal system look like 2, 5 or 10 years from now?
Brexit – what’s happened so far? • Referendum on 23 June 2016 resulted in vote for Brexit • When will Article 50 be triggered and by whom (Government or Parliament)? U.K. Supreme Court to rule on this issue • Article 50 notice will trigger a 2 year negotiation period • What does Brexit mean? ” Brexit means Brexit ” – doesn’t explain much
Brexit – more questions than answers… • Hard vs. soft Brexit? • Will U.K. have access to the internal market for goods, services, capital and persons (“ passporting ” etc .)? • What will English law look like after a large part of it (EU law) has been removed? • Will English judgments/decisions be recognised and enforced in the EU and the EEA/EFTA area? • Will the U.K. be able to conclude free trade agreements in the foreseeable future?
What English lawyers say about the impact of Brexit … PRE REFERENDUM POST REFERENDUM ” Brexit will be bad for British business ”The outcome of this referendum and for the London arbitration scene” does not affect the workings of the LCIA or the conduct of cases subject to its rules” ”A case of better -the-devil-you-know, more inclined to stay in […] than leave” ”The suggestion that UK’s Brexit will make London a less desirable seat for international arbitration is ”Litigation would be immediately utter nonsense” affected and there would be a crying need to find a substitute for the Brussels Regulation” ”English law will remain as the first choice as a governing law” ”Brain drain in London” ”Keep calm and carry on”
Possible issues of contention in existing contracts • How (if at all) will EU law apply in relation to pre-Brexit contracts? • Could Brexit be used to argue that the purpose of a contract has been frustrated? • Could Brexit be used to argue that there has been a ”material adverse effect” with respect to a contract? • How will a contractual requirement to comply with a specific EU law be interpreted post-Brexit?
The importance of a modern approach to contracts
Swedish law is rooted in tradition yet adapted to modernity • Considered a member of the civil law legal family, but with elements of common law • Based on statutes drafted by specialists and enacted after being reviewed by a committee consisting of Supreme Court judges • Preparatory works to laws are of high quality and are used for statute interpretation ensuring predictability
Swedish law is rooted in tradition yet adapted to modernity • Laws are in line with international best practice and based on comparative reviews • Judges are renowned for their independence and there is little movement between the judiciary and law firms (and few ”big egos” on the bench)
Swedish contract law is predictable and effective • Freedom of contract is extensive and pacta sunt servanda is upheld • Parties are free to agree on contractual remedies for breach of contract • Specific performance is allowed • Provides for full compensation of damage • Liquidated damages and contractual penalties are recognized
Swedish contract interpretation is based on common sense • The starting point – the contract is interpreted according to the common intention of the parties • In nearly all instances, the wording of contract will be conclusive evidence of such common intention • If proven, the intention of the parties can be manifested in statements or conduct before or after the conclusion of the contract
Swedish contract interpretation is based on common sense • Thus, Swedish contract interpretation is consistent with international standards (e.g. UNIDROIT Principles of International Contracts) • By choosing Swedish law, parties can avoid bizarre outcomes resulting from solely considering the objective meaning of language
Common English reactions to Swedish contracts • “ Is that IT !?” • Suspicion that the Swedes are trying to “pull a fast one” by leaving out a lot of important words • Anxiety that without more words you will be “naked” (unprotected) after deal is done • Disbelief that you can really ”cover” a deal with so few words • But: Swedish contract drafting is efficient and results in a clear and accessible contract
Swedish substantive law is accessible and understandable to foreigners • Fundamental Swedish commercial legislation, Swedish case law and Swedish law commentaries are available in translation, some also in Russian • Swedish lawyers are invariably proficient in English and many speak additional foreign languages • Swedish law is also understandable to most foreign lawyers since it includes elements of both civil and common law and because the Swedish legislative process is based on a comparative approach
The importance of minimizing cost and reducing time
Cost and time are a threat to effective dispute resolution • Perception that time and cost of international arbitration are increasing • 2015 International Arbitration Survey by Queen Mary University • Question: ”What are three worst characteristics of international arbitration?” • 68% mentioned “cost” and 36% ”lack of speed”
SCC arbitration is relatively cost-effective • SCC arbitration costs are predictable since they are based on the amount in dispute, whereas costs at the LCIA are based on hourly rates • The median cost of SCC arbitration (excluding cost of legal representation) is approx. EUR 23,000 (Sole Arbitrator) and EUR 145,000 (three arbitrators) • The LCIA has not published comparable data but arbitration costs are likely considerably higher • More importantly, the cost of legal representation is significantly higher in England than in Sweden
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