Department 02 6 March 2014 T 4519-13
Division 020109 Stockholm
Document ID 1120316
Postal Address Visiting address Telephone Telefax Opening Hours P.O. Box 2290 Birger Jarls Torg 16 08-561 670 00 08-561 675 09 Monday – Friday
103 17 Stockholm 08-561 675 00 9:00 am – 3:00 pm
Al Gaoud General Trading Est. P.O. Box 10211
United Arab Emirates
Counsel: Advokaterna JP and CV LEGIO Advokatfirma AB
Drottninggatan 94 11136 Stockholm
SAAB Aktiebolag (publ.), Electronic Defence Systems, 556036-0793 412 89 Göteborg
Counsel: Advokaterna JK and ET Setterwalls Advokatbyrå AB P. O. Box 11235
404 25 Gothenburg
Challenge of the arbitral award rendered in Stockholm on 13 February 2013 in arbitration matter ICC17726/ARP/MD
JUDGMENT OF THE COURT OF APPEAL
1. The Court of Appeal rejects the claims of the claimant.
2. Al Gaoud General Trading Est. is ordered to compensate SAAB
Aktiebolag (publ.), Electronic Defence Systems for its litigation costs before the Court of Appeal in the amount of SEK 125,000, all comprising costs for legal counsel, plus interest thereon pursuant to Section 6 of the Swedish Interest Act from the day of the judgment of the Court of Appeal until the day of payment.
Al Gaoud General Trading Est. (Al Gaoud) is a company registered in Dubai, the United Arab Emirates. The company’s business is mainly to represent foreign companies in the defense industry in their relations to procuring units of the United Arab Emirates’ armed forces.
Al Gaoud and Ericsson Microwave Systems AB (Ericsson) entered into several agreements during the 1990’s, including a Marketing Agreement of 11 March 1999 (hereinafter the Agreement). Under the Agreement Al Gaoud’s assignment was to on behalf of Ericsson market, amongst other things, Erieye, an airborne radar system, in the United Arab Emirates. SAAB Aktiebolag AB (publ.), Electronic Defence Systems (SAAB) acquired Ericsson in 2006. Thereby, Ericsson’s obligations under the Agreement were transferred onto SAAB.
In 2010 discussions arose between the parties with respect to which deliveries Al Gaoud was entitled to commission. On 2 February 2011, Al Gaoud
requested arbitration and claimed compensation for unpaid commission fees. SAAB disputed Al Gaoud’s claim.
In its arbitral award of 13 February 2013 the arbitral tribunal rejected Al Gaoud’s claim (see appendix).
MOTIONS BEFORE THE COURT OF APPEAL
Al Gaoud has in the main moved that the Court of Appeal shall remand the case back to the arbitral tribunal so that all referenced factual circumstances can be considered, and in the alternative, that the Court of Appeal shall annul the arbitral award, partially or in its entirety.
SAAB has disputed that the arbitral award shall be remanded or annulled. The parties have claimed compensation for their litigation costs before the Court of Appeal.
THE PARTIES’ RESPECTIVE GROUNDS Al Gaoud
Procedural errors have occurred during the arbitration proceedings (item 6 of the first paragraph of Section 34 of the Swedish Arbitration Act (SFS
1999:116)). The errors include that the arbitral tribunal has not considered all of the factual circumstances referenced by Al Gaoud and that the arbitral tribunal has allowed a witness to be heard through a party’s counsel, which violates the right to cross examination. The errors occurred without having been caused by Al Gaoud and have, individually or jointly, likely affected the outcome in the case.
The arbitral tribunal has considered all circumstances referenced by Al Gaoud. No witnesses have been heard through a party’s counsel and the right to cross examination has not been violated. Thus, no procedural error has occurred. If any error giving grounds to challenge did occur, it is not likely that the error affected the outcome in the case and if such an error did occur, Al Gaoud caused it.
THE PARTIES’ FURTHER DETAILS Al Gaoud
The arbitral tribunal has not considered all the referenced factual circumstances
In accordance with applicable rules, the arbitral tribunal produced a summary, named “Terms of Reference”, in which the background of the dispute was set out. The document listed the grounds referenced and motions made by Al Gaoud, as well as SAAB’s position. The grounds noted as referenced by Al Gaoud were “Al Gaoud’s claim for compensation is in the main based on contractual rights. If the arbitral tribunal finds that the Agreement has expired, then Al Gaoud has, as a first alternative, the right to commission ex-post pursuant to the previous agency arrangement. As a second alternative,
Al Gaoud is entitled to non-contractual damages.” Thus, Al Gaoud based its case on a contractual right, which was referenced in the preparatory stages, and also in the presentation of the factual circumstances as well as in the closing arguments during the main hearing. This is also set out in the arbitral award, paragraphs 30-48. Thus, the grounds are not limited to the Agreement. Al Gaoud maintained that the cooperation, irrespective of how this was manifested between the parties, has led to a contractual obligation to pay commission to the agent upon a sale. Al Gaoud expressed this by claiming compensation based on a contractual right.
The parties cooperated from 1983 until 2003 and eight agreements have been made by and between them. Since practices and routines can constitute contents of an agreement, Al Gaoud opted to reference the longstanding cooperation between the parties in addition to the written agreements. During the preparatory stages of the arbitration proceedings a large portion of the discussions revolved around the last of the agency agreements, entered into in March of 1999. This was the case because the evolution of the agreements entailed that the time limits for Al Gaoud’s right to commission had been expanded over time and that the commission had been increased and also included more products. From the evidence and from what Al Gaoud
referenced in the case, as well as from what is stated in the arbitral award, it is however clear that the entirety of the cooperation from 1989 until 2003 was referenced by Al Gaoud. Thus, the arbitral tribunal was obliged to consider the events that transpired between the parties between 1989 and 2003 to determine whether an agreement had been entered. However, the arbitral tribunal has limited its review to one of the eight written agreements. This is evident from paragraph 73 (the Court of Appeal notes that the correct paragraph number is 75) of the arbitral award.
Al Gaoud assumed that all referenced circumstances would be considered in the arbitral award. The circumstances referenced by Al Gaoud do not merely constitute factual circumstances in the dispute, but are also a binding framing for scope of the arbitral tribunal’s review. Al Gaoud became aware that not all referenced circumstances would be considered only when the arbitral
award was rendered. Thus, the error has occurred without having been caused by Al Gaoud. The actions of the arbitral tribunal constitute a procedural error under item 6 of the first paragraph of Section 34 of the Swedish Arbitration Act.
When comparing the legal opinions submitted during the arbitration proceedings it is likely that the arbitral tribunal’s decision to not consider referenced agreements and certain factual circumstances can have affected the outcome of the case. They were obviously a deciding factor to CR’s
conclusion as compared to BD’s and JR’s conclusions. This means that the legislator’s requirements with respect to challengeable procedural error that likely affected the outcome of the case are met. Consequently, all
requirements are fulfilled to, in the main, remand the arbitral award or, in the alternative, to annul it, partially or in its entirety.
Witness heard through a party’s legal counsel
In the arbitration proceedings SAAB requested TI to be heard as a witness. Also Al Gaoud was interested in questioning TI. However, prior to the main hearing SAAB withdrew its request and instead submitted a written
statement, claiming that TI did not have the time or possibility to participate. Al Gaoud stated that it had been informed that TI’s written witness statement had been drafted by SAAB’s counsel JK, which affected the credibility of the statement substantially. Al Gaoud referenced documentary evidence in
support hereof. In response, SAAB requested that JK be heard as a witness on the circumstances surrounding the drafting of the written witness statement. To allow this hearing constitutes a procedural error and violates the right to cross examination. The error is that evidence from witnesses can be
referenced in one of two ways. Either the witness appears in person, or a party submits a written witness statement. However, written witness
statements have lower evidentiary value than hearing a witness in person. To introduce written witness statements from a party’s counsel, when Al Gaoud had submitted documentary evidence to establish that TI had been pressured into signing a written witness statement drafted for him, strips Al Gaoud from
the possibility to cross examine the written witness statement. Such a course of action would from an international perspective be considered to deviate from what constitutes proper and due evidence, which the arbitral tribunal ought to have considered in its dealing with the case.
The arbitral tribunal has considered all referenced circumstances First, with respect to the statement in “Terms of Reference” to which Al Gaoud has alluded, it is readily apparent from the paragraph mentioned by Al Gaoud that Al Gaoud only has referenced one agreement as an immediately relevant circumstance. Further, it should be noted that Al Gaoud in another paragraph in “Terms of Reference” has provided a more precise definition of the term “the Agreement”. Here, Al Gaoud has stated that this relates to the agreement of 11 March 1999. Thus, “Terms of Reference” does not support that Al Gaoud has referenced anything but the Agreement.
In paragraph 26 of the arbitral award, the arbitral tribunal has noted that the grounds for Al Gaoud’s case are that the company has fulfilled its obligations under the Agreement. The term “the Agreement” is in paragraph 3 of the arbitral award defined as the Marketing Agreement of 11 March 1999. SAAB does not consider it odd that the arbitral tribunal in its grounds bases its considerations concerning what that Al Gaoud has opted to call grounds of contractual nature on the Agreement.
It is true that Al Gaoud under the heading “Further details” in the arbitral award has touched upon the previous agreements between the parties. It is however clear that Al Gaoud references previous agreements in order to illustrate and support what Al Gaoud has maintained on the right to commission, but not that they themselves would entitle Al Gaoud to commission fees. A circumstance cannot be considered referenced merely because it has been mentioned. It must also be set in a legal context so that the counterparty understands what he must defend.
Even if Al Gaoud would be right in maintaining that it has referenced the remaining seven agreements as grounds for its case, it should be noted that the arbitral tribunal, apparently mainly as a precautionary measure, did consider whether these agreements gave rise to a right to commission. In the first sentence of paragraph 98 the arbitral tribunal notes that Al Gaoud is not entitled to commission under the Agreement. In the second sentence, the arbitral tribunal notes that Al Gaoud also not otherwise, i.e. outside the scope of the Agreement dealt with by the first sentence, has referenced grounds and evidence entitling Al Gaoud to commission. Thus, the arbitral tribunal has in its opinion considered that which was referenced with respect to agreements by Al Gaoud. As a result, no challengeable procedural error could have occurred in this respect.
Another precondition for a successful challenge with respect to the arbitral tribunal failing to consider a referenced circumstance is, pursuant to item 6 of the first paragraph of Section 34 of the Swedish Arbitration Act, that the failure likely affected the outcome of the case. In the event that Al Gaoud had referenced the previous seven agreements it is not possible that this would have affected the outcome of the case, because the parties agreed in the Agreement that the previous agreements between them had ceased to apply. Further, the error shall have occurred without having been caused by the party. Al Gaoud drafted its own grounds. Al Gaoud itself referred to the Agreement with a capital A and Al Gaoud has submitted its opinion on the “Terms of Reference” without even hinting at them being deficient in these respects. Al Gaoud has in various ways confirmed in writing that it is the Agreement which serves as grounds for the case. To the extent something else was intended, Al Gaoud must be deemed to have caused the error now
claimed by Al Gaoud to have occurred. No witness was heard through party’s counsel
No witness was heard through party’s counsel. SAAB referenced a written witness statement and an oral hearing. To contradict Al Gaoud’s claims that the witness statement had been drafted by SAAB’s counsel and that TI had
been pressured into signing it JK was heard as a witness. Al Gaoud cross examined him.
In any event, Al Gaoud ought to have presented its opinion during the arbitration proceedings. By failing to do so, Al Gaoud has contributed to the error. It should further be noted that the arbitral tribunal appears to have considered mainly other things than TI’s written witness statement and JK’s witness statement. Any possible procedural error could therefore not be assumed to have affected the outcome of the case.
GROUNDS OF THE COURT OF APPEAL
Pursuant to item 5 of the first paragraph of Section 18 of Chapter 42 and Section 1 of Chapter 53 of the Swedish Code of Judicial Procedure, the Court of Appeal has decided the case without a main hearing.
Documentary evidence has been referenced.
The considerations of the Court of Appeal
Were referenced circumstances not considered?
Al Gaoud has maintained that the arbitral tribunal did not consider all circumstances which had been referenced. The error is, according to Al Gaoud, that the arbitral tribunal did not consider the events that transpired between the parties during 1989-2003 to decide whether an agreement had been entered between the parties. Thereby, the arbitral tribunal limited its review to one of the in total eight written agreements between the parties and this, according to Al Gaoud, constitutes a procedural error.
Item 6 of the first paragraph of Section 34 of the Swedish Arbitration Act provides that an arbitral award shall be annulled if, without it having been
caused by the parties, a procedural error occurred that likely affected the outcome of the case.
In paragraph 26 the arbitral tribunal sets out the grounds referenced by Al Gaoud in support of its case. Here the following is provided: “Al Gaoud’s claim for compensation rests, in the main, on a contractual basis – the agency agreement and the agency relationship. […] If the arbitral tribunal would find that the Agreement has ceased to apply, then Al Gaoud has in the alternative claimed that it is entitled to commission ex-post under a
previously applicable agency relationship since SAAB through Al Gaoud’s assistance has successfully sold and delivered air and naval based radar systems to the United Arab Emirates.”
It is not expressly set out in the arbitral award whether the arbitral tribunal considered if previous agreements or what otherwise transpired between the parties during 1989-2003 could entitle Al Gaoud to commission.
Nevertheless, the arbitral tribunal must be held to have considered this based on what the arbitral tribunal states in paragraph 98. Under the heading “Summary” the arbitral tribunal states: “The conclusions reached by the arbitral tribunal above with respect to the right to commission based on the Agreement and principles of agency law on right to commission ex-post do not entitle Al Gaoud to commission. Further, Al Gaoud has not otherwise referenced grounds and evidence that could entitle Al Gaoud to commission with respect to the relevant sales.” Thus, the arbitral tribunal first notes that Al Gaoud is not entitled to commission based on the Agreement or principles of agency law on right to commission ex-post. Since the arbitral tribunal thereafter notes “Further, Al Gaoud has not otherwise referenced grounds and evidence that could entitle Al Gaoud to commission with respect to the relevant sales” it must be deemed clear that the arbitral tribunal considered not only the Agreement but also what Al Gaoud had otherwise referenced in support of its case. Thus, the arbitral tribunal must be deemed to have considered all circumstances referenced by Al Gaoud.
No procedural error has occurred in this respect and Al Gaoud’s motions cannot be granted on these grounds.
Did a procedural error occur with respect to hearing JK as a witness? Al Gaoud has maintained that the arbitral tribunal allowed a witness to be heard through the party’s legal counsel, which would constitute a procedural error.
The arbitration clause provides that Swedish law is applicable. Swedish law is based on the principle of the right to reference any evidence. SAAB has referenced a written witness statement signed by TI. Following Al Gaoud having maintained that the written statement had not been drafted by TI, but rather by SAAB’s counsel, and that TI had been pressured into signing it, SAAB requested JK to be heard as a witness on the circumstances
surrounding TI’s written statement. Thus, SAAB referenced one written witness statement, and one oral witness statement, as two separate pieces of evidence. That cannot be seen as a witness being heard through a party’s counsel as maintained by Al Gaoud.
In the event that the dealing with these matters by the arbitral tribunal would be considered a procedural error, Al Gaoud had ample time to object hereto at main hearing. Al Gaoud did not. Al Gaoud’s failure to object precludes it from challenging the arbitral award on these grounds. Thus, Al Gaoud’s motion cannot be granted on these grounds.
Summary and litigation costs
The Court of Appeal has found that none of the grounds referenced by Al Gaoud in support of its case entail that the arbitral award shall be remanded or annulled. Thus, the claimant’s motions shall be rejected.
Upon this outcome Al Gaoud shall be ordered to compensate SAAB for its litigation costs before the Court of Appeal. SAAB has claimed SEK 175,000
in compensation for litigation costs. Al Gaoud has attested SEK 45,000 as reasonable.
With respect to the reasonableness of the amount claimed by SAAB the Court of Appeal finds as follows. SAAB’s invoice shows that the claimed amount includes fees for counsel during February until October of 2013. Al Gaoud’s application for a summons was received by the Court of Appeal on 13 May 2013. Thus, the claim for compensation includes work performed during a relatively long time prior to the challenge proceedings being opened. SAAB has not provided any explanation hereon. Al Gaoud’s obligation to
compensate with respect to the present case cannot be deemed to include that entire period. Having regard thereto and considering, amongst other things, the nature and scope of the case, the Court of Appeal finds that SAAB is reasonably entitled to SEK 125,000 for fees for legal counsel.
SAAB has raised the issue whether there are grounds to hold JP and CV jointly and severally liable with Al Gaoud to compensate SAAB’s litigation costs. JP and CV have disputed that grounds for counsel’s joint and several liability are at hand.
If a party is ordered to compensate the counterparty’s litigation costs and that party’s representatives or counsel through negligence have incurred costs for the counterparty, the court may order him or her to, in addition to the party, compensate that cost (Section 7 of Chapter 18 of the Swedish Code of Judicial Procedure). The mere fact that a party’s case is built on weak grounds cannot entail liability for a party’s counsel to compensate the
counterparty’s costs. The Court of Appeal finds that JP and CV have not been negligent in such a manner as set out in Section 6 of Chapter 18 of the
Swedish Code of Judicial Procedure, to which reference is made in Section 7 of Chapter 18 of the same Code. Thus, they shall not be held jointly and severally liable with Al Gaoud to compensate SAAB’s litigation costs.
Pursuant to the second paragraph of Section 43 of the Swedish
Arbitration Act (SFS 1999:116) the judgment of the Court of Appeal may not be appealed.
The decision has been made by: Judges of Appeal KÅ, reporting Judge of Appeal, KB and Deputy Judge of Appeal JF.