1. Dongfang Boiler Group Co., Ltd Zigong City Sichuan Province China

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Division 020108 Stockholm

Document ID 1078966

Postal Address Visiting address Telephone Telefax Opening Hours 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 e-mail: svea.avd2@dom.se

www.svea.se CLAIMANT

1. Dongfang Boiler Group Co., Ltd. 643001 Zigong City

Sichuan Province China

2. Dongfang Boiler Works Address as above

3. Dongfang Electric Corporation 333 Shuhan Avenue

Chengdu

Sichuan Province China

Counsel to 1-3: Advokat Mr. E and European Lawyer James Hope Advokatfirman Vinge KB

P.O. Box 1703 111 87 Stockholm RESPONDENT

1. Foster Wheeler Energy Corporation Perryville Corporate Park

Clinton

New Jersey 08009-400 USA

2. Foster Wheeler North America Corporation Address as above Counsel to 1-2: Advokat Mr. N Advokatfirman Lindahl KB P.O. Box 1065 101 39 Stockholm MATTER

Challenge of arbitral award __________

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JUDGMENT OF THE COURT OF APPEAL

1. The Court of Appeal grants the motions of the claimants only in that the Court of Appeal annuls the last part of item (e) of the operative part of the arbitral award (paragraph 485) rendered in Stockholm on 20 October 2011, SCC Arbitration V (005/2009), with corrections on 19 December 2011 and 7 March 2013, meaning that item (e) shall have the following wording.

“DEC and DBC shall jointly and severally be liable for all sums that DEC and DBC have been ordered to pay in this Partial Award.”

2. Dongfang Boiler Group Co., Ltd. and Dongfang Electric Corporation are ordered to jointly and severally compensate Foster Wheeler Energy

Corporation for its litigation costs before the Court of Appeal in the amount of SEK 517,522 and GBP 6,500, plus interest thereon pursuant to Section 6 of the Swedish Interest Act from the date of the judgment of the Court of Appeal until the date of payment. Apart from SEK 52, the amounts comprise costs for legal counsel.

3. Dongfang Boiler Group Co., Ltd. and Dongfang Electric Corporation are ordered to jointly and severally compensate Foster Wheeler North America Corporation for its litigation costs before the Court of Appeal in the amount of SEK 517,522 and GBP 6,500, plus interest thereon pursuant to Section 6 of the Swedish Interest Act from the date of the judgment of the Court of Appeal until the date of payment. Apart from SEK 52, the amounts comprise costs for legal counsel.

4. The confidentiality of the information presented during the main hearing behind closed doors before the Court of Appeal and that could divulge the operating and business models of the parties shall remain pursuant to Section 2 of Chapter 36 of the Swedish Public Access to Information and Secrecy Act (SFS 2009:400).

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_________________ BACKGROUND

Dongfang Boiler Group Co., Ltd, Dongfang Boiler Works and Dongfang Electric Corporation (hereinafter collectively referred to as Dongfang) are Chinese companies belonging to the Dongfang Group, one of China’s biggest manufacturers of power plants.

Foster Wheeler Energy Corporation and Foster Wheeler North American Corporation (hereinafter collectively referred to as Foster Wheeler) are US companies belonging to the Foster Wheeler Group, which among other things designs and manufactures generators and other types of power plants.

In January of 2009, Foster Wheeler requested arbitration against Dongfang under the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce. The dispute between the companies relate to a license agreement for the design and manufacture of steam power plants which was initially entered on 10 March 1994 and has subsequently been amended several times.

In the arbitration proceedings Foster Wheeler claimed compensation for, amongst other things, unpaid royalties and damages for the unlicensed use of technology in breach of the parties’ license agreement.

Dongfang disputed Foster Wheeler’s claims and presented counterclaims to be set off against any possible liability towards Foster Wheeler.

In a submission in January of 2013, prior to the scheduled main hearing in March of 2013, Foster Wheeler presented further claims for damages and unpaid royalty. Dongfang moved that the new claims should be disallowed. The arbitrators rejected the motion to disallow and decided that the review of the new claims would be undertaken at a later stage in the arbitration

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separate partial award, Foster Wheeler’s initial claims and counterclaims. On 20 October 2011 (including a correction of 19 December 2011) the arbitrators rendered a partial arbitral award. The arbitral award in its form after the correction of 19 December 2011 is hereinafter referred to as the “Arbitral award”.

Through an application for a summons submitted to the Court of Appeal on 30 December 2011 Dongfang lodged a challenge against the Arbitral award and moved that it should be annulled in its entirety, or in the alternative, at least partially.

Before the Court of Appeal it was established that the parties agreed that Foster Wheeler Energy Corporation and Dongfang Boiler Works were not part of any motions in the first stage of the arbitration proceedings, but nevertheless, incorrectly, had been included in items (a) – (e) of the operative part of the Arbitral award and that the arbitrators, despite what had been set out in paragraph 461 of the Arbitral award, had not worded the operative part of the award in consideration of a motion for set off having been made by Dongfang Electric Corporation and Dongfang Boiler Group Co., Ltd.

Foster Wheeler, however, disputed Dongfang’s challenge, with the exception for the challenge grounds relating to the fact that the arbitrators had failed to decide on the set off counterclaim. In the event that the Court of Appeal would find that grounds for annulment were at hand to any extent, Foster Wheeler moved that the arbitrators should be awarded the opportunity to remove the grounds for annulment pursuant to Section 35 of the Swedish Arbitration Act (SFS 1999:116).

On 22 January 2013, the Court of Appeal held the main hearing and

subsequently decided, on 5 February 2013, to stay the proceedings and award the arbitrators the opportunity to remove the grounds for annulment partially because Foster Wheeler Energy Corporation and Dongfang Boiler Works incorrectly had been included in items (a) – (e) of the operative part of the Arbitral award (paragraph 485) and partially because Dongfang Boiler Group

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Co., Ltd.’s and Dongfang Electric Corporation’s counterclaim for set off had not been considered in the operative part of the award.

On 8 March 2013 the Court of Appeal received a “Second Memorandum of Correction to the Partial Award” (hereinafter the Second Memorandum) of 7 March 2013.

Thereafter, the Court of Appeal awarded the parties the opportunity to submit objections to the decisions of the arbitrators, i.e. to clarify whether the

decisions of the arbitrators would cause the parties to reference any other challenge grounds (cf. Lindskog, Skiljeförfarande, En kommentar, 2nd ed., 1 March 2013, Zeteo, Section 35, section 5.1.4).

Dongfang raised an objection and was awarded additional time to reference additional challenge grounds against the arbitral award in its corrected wording as of 7 March 2013, i.e. launch a challenge against the arbitrators’ correction decision of 7 March 2013.

After Dongfang had declared that it maintained the challenge grounds already submitted and also submitted new challenge grounds against the Second Memorandum and against the arbitral award in its corrected form of 7 March 2013, the Court of Appeal held a continued main hearing on 31 May 2013.

MOTIONS BEFORE THE COURT OF APPEAL

Dongfang has, as finally determined, moved as follows.

In the main, it is moved that the Court of Appeal shall annul the arbitral award rendered between the parties on 20 October 2011 including corrections of 19 December 2011 and 7 March 2013. This motion covers all items of the operative part of the arbitral award (paragraph 485).

As a first alternative, it is moved that the Court of Appeal shall annul the Second Memorandum and the Arbitral award.

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As a second alternative, it is moved that the Court of Appeal shall annul the Second Memorandum as well as the Arbitral award at least to the extent it covers

a) the parties Foster Wheeler Energy Corporation and Dongfang Boiler Works,

b) Foster Wheeler’s claims for damages in the form of “notional royalty” and interest thereon (items (a) and (b) of the operative part of the award),

c) Foster Wheeler’s claims for unpaid royalties and interest thereon (items (c) and (d) of the operative part of the award), and

d) The allocation of costs for the arbitration proceedings (item (g) of the operative part of the award).

The motions in a) – d) above and the partial motions therein are separate and there is consequently nothing preventing the granting of one or several of the motions irrespective of the outcome of the other motions. Dongfang has not, however, moved that the allocation of costs in item (g) of the operative part of the award shall be annulled if the Court of Appeal finds that the challenge shall be granted only for the challenge ground upon which the motion set out in a) above is based and/or the challenge ground that the arbitrators have failed to decide on set off.

In the event that the Court of Appeal does not grant the second alternative motion with respect to the annulment of the Second Memorandum in its entirety, it is moved as set out in items a) – d) in the second alternative motion and also with respect to corresponding items of the operative part of the award (paragraph 485) in its wording following the Second

Memorandum.

In the event that the Court of Appeal does not grant the second alternative motion with respect to the annulment of the Second Memorandum in its entirety, it is nevertheless moved that the Second Memorandum shall be annulled with respect to “and for all damages due to Claimants in respect of

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Respondents’ breaches of the Agreement occurring after 27 January 1999” in

item (e) of the operative part of the award.

Foster Wheeler has disputed that the arbitral award including corrections of

19 December 2011 and 7 March 2013 shall be annulled, with the exception of the last part of item (e) of the operative part of the award (paragraph 485), in respect of which Foster Wheeler has admitted Dongfang’s claims. In the event that the Court of Appeal finds, with respect to Dongfang’s second alternative motion, that grounds for annulment are at hand for items (c) and

(d) of the operative part of the Arbitral award, Foster Wheeler has moved that

also item (e) in that wording shall be annulled, since they are connected in such a way that item (e) then cannot reasonably be upheld.

Dongfang has in its turn admitted Foster Wheeler’s motion that also item (e)

of the operative part of the Arbitral award shall be annulled if items (c) and

(d) of the operative part of the award are annulled.

The parties have claimed compensation for their litigation costs.

THE PARTIES’ GROUNDS Dongfang

Dongfang’s motions

Dongfang’s main motion is based on the assumption that the Second Memorandum is a correction, and not a new arbitral award. The first alternative motion is based on the opposite assumption, i.e. that the Second Memorandum is a new arbitral award.

The second alternative motion relates to the situation in which the Court of Appeal has found that the Second Memorandum shall be annulled in its entirety and that consequently the motions set out in a) – d) shall be reviewed

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based on the situation prior to the Court of Appeal remanded the Arbitral award to the arbitrators.

The motion that follows the second alternative motion relates to the situation in which the Second Memorandum is not annulled in its entirety, but that, for example, Dongfang’s motion relating notional royalty shall be granted. From an enforcement perspective, the judgment of the Court of Appeal should clarify that the relevant items of the Arbitral award as well as the Second Memorandum no longer apply.

Dongfang’s case against the Arbitral award

The Arbitral award shall be annulled in its entirety because the arbitrators shall be disqualified. Mr. N represented Wheeler Foster in the arbitration proceedings, but the arbitrators have deemed his statements in the

proceedings on the contents of Swedish law as evidence and have exalted him to an “eminent expert of Swedish law”. In the Arbitral award, the arbitrators explicitly state that they have been persuaded by Mr. N’s statements on the contents of Swedish law. That the arbitrators have considered these

statements as evidence and the subjective evaluation of Mr. N have thus formed the basis of the arbitrators’ decision on one fundamental issue in the dispute, i.e. damages in the form of notional royalty. Concurrently, the arbitrators have failed to comment on Dongfang’s arguments on the same issue. Therefore, the arbitrators have not been impartial and there are circumstances giving rise to doubts as to their impartiality.

Further, the Arbitral award was rendered so as to include parties – Foster Wheeler Energy Corporation and Dongfang Boiler Works – that did not fall within the scope of any of the motions in the case. Thereby, the arbitrators exceeded their mandate, or alternatively committed a procedural error that likely affected the outcome of the case. The Arbitral award shall in any event be annulled to the extent it covers the aforementioned companies.

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The arbitrators have incorrectly exalted Mr. N to witness and expert, and based their decision on the issue of damages in the form of notional royalty on the evidence obtained thereby. In doing so, the arbitrators have also breached the procedural rules set for the proceedings. What is more, the arbitrators have failed to consider Dongfang’s invalidity objections based on Swedish as well as Chinese law related to the claim for damages in the form of notional royalty due to alleged breaches of the parties’ license agreement. Further, the arbitrators, despite Dongfang have been awarded a certain

amount by set off, failed to set out an order on the set off in the operative part of the award, with the effect that also the calculation of the interest is

incorrect. Hereby, the arbitrators have exceeded their mandate. Alternatively, this comprises a procedural error which likely affected the outcome of the case. Thus, grounds to annul items (a) and (b) of the operative part of the award are at hand.

During the arbitration proceedings the arbitrators decided through a

procedural decision, Procedural order, that Foster Wheeler’s claim based on unpaid royalties would not be settled in the arbitral award. A long time after the main hearing the arbitrators decided that the claim would be reviewed. This was done at such a late stage that Dongfang did not have any possibility to present its views on the issue. Further, the arbitrators assumed, without valid grounds, that the amount was undisputed. As a result of the incorrect procedural dealing with the issue, the arbitrators have awarded an incorrect amount. In addition, the arbitrators have failed, despite that Dongfang has been awarded an amount by way of set off, to provide for the set off in the operative part of the award. Also a consequence thereof, the arbitrators have awarded an incorrect amount resulting in an incorrect calculation of interest. This constitutes an excess of mandate, or alternatively a procedural error that likely affected the outcome of the case. Thus, grounds to annul items (c) and

(d) of the operative part of the award are at hand.

The order of the arbitrators set out in item (g) of the operative part of the award (paragraph 485 of the arbitral award) shall be annulled because the

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allocation of costs is based on what the arbitrators concluded in the various aspects of the case. If any part of the operative part of the award is annulled, then also the decision on allocation of costs shall be annulled.

Dongfang’s grounds for challenge with respect to the Second Memorandum

The following grounds are referenced in this respect in support of the main and the first alternative motions as well as the second alternative motion to the extent it concerns the annulment of the Second Memorandum.

Firstly, the arbitrators, instead of taking the required measures following the Court of Appeal’s remanding of the award, ordered the parties to take measures pursuant to the letter from the Court of Appeal, which in practice lead to the arbitrators letting Foster Wheeler draft the Second Memorandum. This constitutes a procedural error that likely affected the outcome of the case. The procedural dealing with the case and the ensuing results do not meet the requirements of arbitrators acting impartially.

Secondly, the arbitrators have – despite Dongfang explicitly having requested that the arbitrators should note Dongfang’s objections to the arbitrators’ correction of the Arbitral award – failed to correctly note Dongfang’s objections to how the arbitrators’ dealt with the case and the drafts of the Second Memorandum that were prepared. This also fails to meet the requirements of impartiality. In addition, this constitutes a procedural error that likely affected the outcome of the case.

Thirdly, the arbitrators appear to have – despite the fact that they ought to have rendered a new arbitral award – issued a correction by way of the Second Memorandum. Thereby, the arbitrators have committed a procedural error that likely affected the outcome of the case.

Fourthly, in the Second Memorandum the arbitrators have made an addition that is entirely unconnected to and completely falls outside the scope of the issues brought up in the remand decision of the case issued by the Court of Appeal. The addition is all the more curious considering that it relates to

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issues that – according to explicit statements in the Arbitral award – should not even be covered by the first stage of the arbitration proceedings. The liability of the relevant Dongfang companies has been substantially expanded through the addition. The arbitrators have through this addition again

incorrectly assessed the relevant parties, since the addition includes also the companies Foster Wheeler Energy Corporation and Dongfang Boiler Works, despite the fact that these companies should not be covered by the award. Hereby, the arbitrators have exceeded their mandate. The manner in which the arbitrators dealt with the case does not meet the impartiality requirement. This is referenced also in support of the annulment of at least the final part of item (e) of the operative part of the award as set out in the Second

Memorandum.

Each and all of the four grounds for the challenge relevant to the Second Memorandum are also referenced in conjunction with previously referenced grounds in support of the annulment of the Arbitral award and the Second Memorandum in their entirety. Thus, this is referenced in support of Dongfang’s main and first alternative motions.

Foster Wheeler

An evaluation of a party’s counsel cannot constitute grounds for disqualification, except in extreme cases, which is not the case here. It is attested that there were no claims from Foster Wheeler Energy

Corporation against Dongfang Boiler Works in the arbitration proceedings. However, the error is actually immaterial and there was no need for a

correction. It is apparent from the grounds of the award but also from item (f) of the operative part of the Arbitral award that no claims were brought against Dongfang Boiler Works, which could be stressed in connection with any execution measures of the arbitral award.

The arbitrators did not perceive or treat Mr. N’s statements as evidence. Issues relating to the contents of applicable law are not something on which

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the parties present evidence. Thus, there has not occurred any procedural error in this respect that affected the outcome of the case. On the merits, the outcome of the case in section is correct.

The arbitrators have neither ignored nor failed to consider Dongfang’s invalidity objections under Swedish and Chinese law in the award, although the notes thereon are rather brief.

As regards the amount of the royalty claim, the arbitrators have not

committed any error. Against the background of how Dongfang litigated the case, the arbitrators had every reason to assume that the amount was not disputed. The issue of unpaid royalties was rather uncomplicated. The arbitrators have a general right and obligation to issue orders on how the proceedings shall be conducted, and the parties are obliged to comply. If a party fails to provide its opinion on a specific matter, the arbitrators are entitled to assume that the issue is not disputed. Dongfang was granted the opportunity to present its views on this issue. The arbitrators notified its intended course of action and then it fell upon Dongfang to present its objections within the arbitration proceedings. No procedural errors have occurred in this respect.

It is attested that no order on a set off is set out in the operative part of the Arbitral award, despite that a set off counterclaim was presented and that the arbitrators in their grounds concluded that a set off should be carried out. There are no grounds to annul the decision on allocation of litigation costs (item (g) of the operative part of the Arbitral award) unless the arbitral award is annulled in substantial portions. The allocation of costs has been

determined favorably to Dongfang and there are no grounds to annul item (g) if only minor amendments are made to other portions of the operative part of the award.

It is disputed that the arbitrators committed a procedural error by inviting the parties to take measures to correct the award or request that they assist in

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making the correction. What transpired appears entirely normal. That Foster Wheeler’s views came to influence the result more than Dongfang’s is a result of Dongfang’s decision to not participate.

It is further disputed that not recounting the parties’ statements word for word is a breach of the impartiality requirement.

It is irrelevant through which form, a correction or a new arbitral award, the arbitrators achieved what the Court of Appeal requested.

Since Foster Wheeler has admitted that the last portion of item (e) of the operative part of the award as set out in the Second Memorandum shall be annulled, what transpired in this respect is irrelevant.

In the event that the Court of Appeal would find that a procedural error of a technical nature occurred, then it has in no case likely affected the outcome of the case.

THE PARTIES’ FURHTER DETAILS Dongfang

General remarks on the arbitration proceedings and the arbitral award

The parties’ agreement provides that disputes between the parties shall be governed by Swedish law.

In the arbitration proceedings, Foster Wheeler claimed that Dongfang, because of use of Foster Wheeler technology in breach of the license

agreement, should pay damages in the form of notional royalty. By notional royalty Foster Wheeler meant such royalty as should have been paid if Dongfang had acquired a license for the allegedly contract breaching use of the technology. The question if such a notional royalty exists under Swedish law was of material importance in the arbitration proceedings.

Initially in the arbitration proceedings, Foster Wheeler presented claims related to four specific power plant projects but noted that additional claims

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for other projects would be lodged. These claims were however not specified. Shortly prior to the main hearing Foster Wheeler presented specified claims for damages in the form of notional royalty relating to another approximately 40 projects. Dongfang objected to the introduction of new claims at such a very late stage in the proceedings. The arbitrators decided during and shortly after the hearing, on 20 and 28 March 2011, that the review of the new claims would be postponed and that Foster Wheeler’s original claims and

Dongfang’s counterclaims would be settled in a separate arbitral award. Dongfang objected to these decisions.

The arbitral award given on 20 October 2011 included several errors, both substantial and minor. Some of the errors were of such nature that Dongfang concluded that they could be corrected. Therefore, Dongfang requested correction in December of 2011. Other errors, on the other hand, were of such nature that they require annulment of the arbitral award, in its entirety or partially.

Incorrect parties

The arbitral award names Foster Wheeler Energy Corporation and Foster Wheeler North America Corporation collectively as “the Claimants” and Dongfang Boiler Group Co., Ltd., Dongfang Boiler Works and Dongfang Electric Corporation collectively as “the Respondents”. During the arbitration proceedings and in the Arbitral award (paragraphs 87 and 93) the arbitrators noted that there were no claims made by Foster Wheeler Energy Corporation or against Dongfang Boiler Works, at least not in the part of the proceedings to be settled through the first arbitral award. Despite this, the Arbitral award was rendered also to cover these companies in the operative part of the Arbitral award (paragraph 485) by the use of the terms Claimants and Respondents. Thus, the award is enforceable against a party that was not a party to the arbitration proceedings.

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On 10-25 March 2011 the main hearing in the arbitration proceedings took place. A pivotal issue in the arbitration proceedings was whether Swedish law, in case of a breach of contract, accepts the idea of damages in the form of notional royalty. If it had been established that Swedish law does not recognize this form of damages, then no damages could be awarded to Foster Wheeler. Consequently, the arbitrators had to settle this issue. Since neither the parties nor the arbitrators were Swedish, the parties submitted evidence on the contents of Swedish law. In its written submissions, Dongfang argued the issue and provided a fairly thorough and careful analysis of the contents of Swedish law with respect to notional royalty and solidified its position

through references to and excerpts from various sources. Also Foster Wheeler provided some arguments including some references to various sources. However, neither party called for an expert witness on the issue. Dongfang had previously considered doing so, but concluded, based on the facts that Foster Wheeler had not summoned an expert witness and that the burden of proof reasonably rested with Foster Wheeler, that Dongfang did not need to summon an expert witness. In the event that Foster Wheeler had referenced evidence in this respect, then Dongfang would also have done so, as in fact happened in the second stage of the arbitration proceedings.

On the eleventh day of the main hearing, questions related to damages should be answered. Then, Mr. E was present as counsel to Dongfang to respond to questions from the arbitrators in this respect. However, only a few questions were presented and the arbitrators did not have any follow-up questions. Mr. N was also present for the same purposes and it was clear to Dongfang that he was present in the capacity as counsel to Foster Wheeler. The Arbitral award calls them counsel (paragraph 61) in the arbitration proceedings and they are consequently not listed as expert witnesses in paragraph 62. If Mr. N was an expert witness he should have, pursuant to the Procedural Order No. 1, submitted a written opinion prior to the hearing.

Paragraph 434 of the Arbitral award is the only section in which the arbitrators analyze the pivotal issue of damages in the form of notional

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royalty. From the wording, it is apparent that the arbitrators treated Mr. N as an expert witness and found his statements to be deciding. The arbitrators have according to the award “been persuaded by the testimony from Mr. N, an eminent expert of Swedish law”. The error committed by the arbitrators occurs in the arbitral award, i.e. seven months after the main hearing, when they treat him as a witness in the proceedings. Thus, the arbitrators based its decision on evidence that had not been referenced, which constitutes an excess of mandate. A person who has acted as counsel cannot also be used for evidence purposes. That this nevertheless happened constitutes a procedural error.

It should be noted that the proceedings did not deal with damages for infringement of intellectual property, but damages for breach of contract. Dongfang’s opinion is that in such cases, damages in the form of notional royalty do not comply with Swedish law.

Further, not even in the second stage of the arbitration proceedings was any support of Foster Wheeler’s opinion on the issue of damages in the form of notional royalty presented. This time, Foster Wheeler summoned an expert, Professor Peter Westberg, but he clarified that he did not comment on civil law provisions nor provide opinions on civil law issues related to damages. Dongfang submitted a fairly thorough analysis on the contents of Swedish law, which basically was left without comment from Foster Wheeler. Since no other support for Mr. N’s opinion was provided in the initial stage of the arbitration proceedings, it is obvious that the arbitrators had no other grounds for awarding damages in the form of notional royalty than the information provided by Mr. N. The requirement that a procedural error shall have affected the outcome is thereby obviously met.

Disqualification

Arbitration proceedings entail high demands with respect to the impartiality of the arbitrators, since arbitral award are in practice not subject to appeal. Mr. N was counsel to Foster Wheeler and his assignment was to represent his

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principal’s interests without being required to present his views on the contents of Swedish law objectively. Despite this the arbitrators have willingly been persuaded by his statements, which is explicitly noted in the arbitral award, in which he is exalted to an “eminent expert on Swedish law”. The arbitral award does not contain anything on Dongfang’s rather extensive arguments on the issue of notional royalty.

In its final submission to the arbitrators after the main hearing but before the Arbitral award, Foster Wheeler itself references to the fact that Mr. N has “testified” during the main hearing. The conclusion of the arbitrators in this respect (paragraph 434) corresponds almost word for word to what is later referenced as his opinion in the said submission.

It is disputed that the word “eminent” is commonplace in legal English. The word “eminent” can further not be viewed as a merely polite phrase when used by the arbitrators in paragraph 434 of the Arbitral award.

Failure to consider certain objections

Foster Wheeler’s main claims in the arbitration proceedings were for

damages for alleged breaches of the parties’ license agreement by Dongfang’s use of the technology covered by the license agreement. The interpretation of the limitations set out in the license agreement proposed by Foster Wheeler was extraordinarily extensive. Amongst other things, it was maintained that the license agreement contained a perpetual prohibition with respect to the technology, and by technology was meant any and all information Dongfang had received under the license agreement, irrespective of whether the

information was previously known or had later become public knowledge. It was further maintained that the prohibition set out in the license agreement covered also power plants of other types than those governed by the license agreement. In practice, this interpretation meant that Dongfang was

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Dongfang disputed that the license agreement should be interpreted in the manner maintained by Foster Wheeler. If the agreement should be interpreted in that manner, Dongfang maintained that it should be adjusted or be deemed null and void for breaches against Sections 36 and 38 of the Swedish

Contracts Act as well as against the Swedish Act on Trade Secrets. Thus, Dongfang did present invalidity objections based on Swedish law. Dongfang also maintained that if the agreement was to be interpreted in that manner, it would be considered invalid under peremptory Chinese law and consequently raised an invalidity objection based also on Chinese law.

Dongfang presented these objections in its written submissions and also provided further details in these respects therein. Thus, the objections were subject for discussions during the arbitration proceedings. However, the arbitrators failed to consider the objections in its arbitral award. Paragraph 192 of the arbitral award provides that the arbitrators, referring to Section 15.5 of the license agreement, saw no need to consider the invalidity objections based on Swedish law raised by Dongfang. Paragraph 194 of the arbitral award provides that the arbitrators concluded that the provisions of the license agreement were clear and there was no need to rely on substantive law to establish the meaning of the license agreement. Dongfang’s objections in this respect do not, however, relate to the interpretation of the license agreement, but rather what should apply if the arbitrators accept Foster Wheeler’s interpretation of the license agreement.

It is not possible from the arbitral award to determine whether the arbitrators considered Dongfang’s invalidity objection based on Chinese law.

Unpaid royalty

In the written submission submitted to the arbitrators in January of 2011 Foster Wheeler presented new claims in the arbitration proceedings, for amongst other things unpaid royalties. Dongfang objected thereto. On 20 March 2011, i.e. during the ongoing main hearing, the arbitrators rendered a decision that in the current stage of the arbitration proceedings they would

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deal only with the claims relating to certain specifically named projects. The claim for unpaid royalty did not relate to any of these projects. As a

consequence, Dongfang assumed that the claim would not be tried in the first arbitral award. In a subsequent decision of 28 March 2011, the arbitrators, referring to the previous decision, announced that a separate arbitral award would be given for the claims that would be reviewed at a later stage.

In a final written submission to the arbitrators of 18 May 2011, after the main hearing had been concluded, Foster Wheeler argued for a decision on the claim for unpaid royalty already in the first arbitral award. On 2 June 2011 the arbitrators announced to the parties that the claim would be settled in the first arbitral award. This contradicted what the arbitrators had announced at the closing stages of the main hearing to the effect that no new documents would be considered. Again, Dongfang objected, but the arbitrators nevertheless considered the claim in the Arbitral award.

Against the background of the arbitral tribunal’s decision of 20 March 2011, Dongfang did not flesh out its opinion on Foster Wheeler’s claim in this respect. If this had been done, it would have included, amongst other things, an objection to the calculation of the amount and reference to a negotiation clause. Because of the arbitrators’ late decision on changed procedural management, these objections could never be presented.

Set off

Dongfang presented counterclaims and moved that they should be netted against any possible compensation to be paid to Foster Wheeler.

The arbitrators were aware of Dongfang’s motion for set off and in the Arbitral award (paragraph 461) it is noted that Dongfang was entitled to a certain amount from Foster Wheeler and that this amount should be set off against the amounts Foster Wheeler was awarded from Dongfang for unpaid royalties. However, no set off was carried in the operative part of the award

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(paragraph 485). Thus, the compensation awarded to Foster Wheeler is too high and this affects also the calculation of interest.

It should also be noted that the set off that the arbitrators in their grounds noted should take place (paragraph 461) should be carried out against Foster Wheeler’s claim based on unpaid royalties, a claim that the arbitrators were not supposed to consider in the first arbitral award.

The arbitrators’ management of the issues remanded from the Court of Appeal

Through a letter of 11 February 2013 Dongfang informed the arbitrators on the management of the ongoing challenge proceedings before the Court of Appeal. With the letter were enclosed the Court of Appeal’s letter to the arbitrators and the minutes of the main hearing of 22 January 2013 as well as unofficial translations thereof. The following day Foster Wheeler responded to Dongfang’s letter to the arbitrators.

After the arbitrators had received Dongfang’s letter and Foster Wheeler’s response, the arbitrators ordered the parties’ respective counsel to prepare an agreed draft letter setting out how to deal with the issues that had arisen as a result of the Court of Appeal’s decision by 22 February 2013. Instead of they themselves taking measures in response to the Court of Appeal’s letter, the parties were ordered to agree on an addendum or other document that would deal with the issues arisen as a result of the Court of Appeal’s letter.

Foster Wheeler drafted a response letter, called “Second Memorandum of Correction” which was e-mailed to Dongfang on 14 February 2013. The following day, Foster Wheeler sent a new draft memorandum with an addition caused by a phrase in paragraph 470 of the Arbitral award concerning joint and several liability for Dongfang. The following day Dongfang received yet another e-mail from Foster Wheeler.

On 18 February 2013 Foster Wheeler forwarded a draft “Second Memorandum of Correction” to the arbitrators by e-mail.

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Dongfang received the e-mails from Foster Wheeler while the preparations for the main hearing for the second stage of the arbitration proceedings were at an intense stage. Therefore, Dongfang notified Foster Wheeler that it needed more time to consider the arbitrators’ order. Shortly thereafter, on 21 February 2013, Dongfang objected to the arbitrators’ order and Foster Wheeler’s draft memorandum. Dongfang clarified that under Swedish law, it is for the arbitral tribunal alone to take such measures as it deems possible and in compliance with applicable law to cure existing challenged

deficiencies in the Arbitral award. Further, Dongfang explained that it did not seem proper to comment on Foster Wheeler’s draft memorandum and that Dongfang did not accept Foster Wheeler’s draft.

On 25 February 2013, the chairman of the arbitral tribunal raised an objection with respect to the names of the parties in Foster Wheeler’s draft

memorandum, in response to which Foster Wheeler updated its draft memorandum. In the latter draft, Dongfang’s position on participating in producing the draft memorandum is correctly noted.

On 28 February 2013, the arbitrators sent a draft memorandum to the parties for their review. In that draft, the arbitrators had merely undertaken minor amendments with respect to form in relation to the latest draft received from Foster Wheeler. However, the arbitrators had made one addition to the recount of Dongfang’s position. In the arbitrators’ wording it was hinted that Dongfang had generally refused to comment on Foster Wheeler’s draft and it was not made clear that Dongfang had deemed it improper to comment on a draft produced by Foster Wheeler. Later that same day, Foster Wheeler produced yet another draft, in which Foster Wheeler had deleted the

paragraph setting out Dongfang’s objection, but had kept the wording from the arbitrators in which the objection was incorrectly recounted.

After yet again having been granted the opportunity to provide its opinion, Dongfang again explicitly and clearly stated that it could not accept Foster Wheeler’s draft memorandum and objected to how the arbitrators had dealt

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with the issue. Dongfang also requested that its opinion should be correctly recounted. Dongfang’s objections did not lead to any actions on the part of the arbitrators but not even this objection was recounted in the Second Memorandum.

In connection with the main hearing in the second stage of the arbitration proceedings the background documentation for the Second Memorandum was discussed. The arbitrators then requested Foster Wheeler to correct certain editorial errors. Dongfang, for its part, referred to its previous objection, but this did not result in any comments from the arbitrators.

On 7 March 2013, the arbitrators announced the final version of the Second Memorandum. Apart from a few minor corrections of editorial nature, Foster Wheeler’s draft of 28 February 2013 had served as the basis. Thus, the arbitrators did not autonomously decide on what measures should be undertaken.

Foster Wheeler

On the circumstances in the arbitration proceedings in general

The Arbitral award is correct in all material aspects.

The documentation in the arbitration proceedings leading up to the challenged award was extraordinarily extensive. The arbitrators main focus was on the pivotal issues of the case, such as to what extent the license agreement included a prohibition for Dongfang to use the technology outside the scope of the agreement and if Foster Wheeler had succeeded in establishing such use. The main part of the arbitral award is consequently dedicated to these issues.

The arbitrators were aware of the difficulties in dealing with all the details submitted by the parties in the proceedings. In the arbitral award (paragraph 80) the arbitrators note that they have considered all information submitted in the dispute, even if they are not recounted in the award.

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Errors with respect to evidence

Already from the wording of the arbitral award (paragraphs 61 and 62) is it clear that the arbitrators were aware that Mr. N was counsel and not a witness. The same applies to Mr. E. Mr. N was not referenced as evidence, but held the position of counsel and it was clear to the arbitrators during the main hearing that he held the same position as Mr. E. During the main hearing both parties were granted the opportunity to present their views on the contents of Swedish law with respect to the issue of damages in the form of notional royalty.

It is not unnatural for a person involved in international proceedings to be considered an expert with respect to his own legal system. This was the case here.

The chairman opened the last day of the main hearing by noting that they had their “two Swedish law experts” present. The word “expert” was used on a few more occasions with respect to a counsel.

It is doubtful that what was divulged during the second stage of the arbitration proceedings on the contents of Swedish law is relevant for the Court of

Appeal’s review of the challenge.

Disqualification

Referring to a counsel as “eminent” is contrary to the customs of drafting Swedish arbitral awards. It does, however, occur in the Anglo-Saxon tradition.

The arbitrators’ dealing with the invalidity objections

The arbitrators do deal with the invalidity objections raised by Dongfang in the arbitration proceedings directly or indirectly in the arbitral award. In paragraph 158, the arbitrators provide a general note that they find no reason that Dongfang should not be bound by parties’ agreement. In

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paragraph 185, it is noted that the agreement, governed by Swedish law, should be interpreted and given effect pursuant to Swedish law, and thus, consequently, independently of what Chinese law provides.

Dongfang did not during the arbitration proceedings reference any

internationally peremptory Chinese provision (cf. “loi de police”) relevant to the now discussed issue. For the issue of whether the arbitrators considered the invalidity objections raised under Swedish law, regard should be had to the heading of paragraphs 191-194 of the Arbitral award. The heading reads “Do the restrictions on the use of the licensed TECHNOLOGY contained in

the Agreement violate Swedish law?” Unpaid royalty

Two months prior to the main hearing, Foster Wheeler provided a specified amount claimed for unpaid royalties. Foster Wheeler accounted for how the amount had been calculated and had no reason to assume that the amount as such would be disputed.

Dongfang had already in its Statement of Defense admitted that it had withheld the outstanding royalty payments. This issue had been discussed already in the initial stages of the arbitration proceedings. Neither during the continued correspondence nor after Foster Wheeler’s having provided a specified amount has Dongfang hinted any objections as to the

reasonableness of the amount as such.

In its notification to the parties of 2 June 2011, the arbitrators clarified that they would also review the claim for unpaid royalties and referenced that this motion had not been subject to Dongfang’s previous motion for disallowing Foster Wheeler’s new motions. With respect to that motion, Dongfang had not had any procedural objections to it being settled in the arbitration proceedings.

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The outstanding royalty payments were also mentioned during the main hearing without Dongfang’s counsel objecting that the amount itself was not undisputed.

Set off

Paragraph 461 of the Arbitral award clearly provides how the arbitrators intended the set off to be carried out.

The arbitrators’ dealing with the issues remanded from the Court of Appeal

Dongfang’s recount of the transpired events is accurate. Dongfang’s actions with respect to the received drafts were however not caused by time

constraints. Foster Wheeler, for its part, had sufficient time to deal with the issues.

THE INVESTIGATION BEFORE THE COURT OF APPEAL Both parties have referenced documentary evidence.

GROUNDS OF THE COURT OF APPEAL Outline of the Court of Appeal’s review

Dongfang has before the Court of Appeal expressed uncertainty with respect to whether the Second Memorandum should be considered as a new arbitral award or a correction of the previous arbitral award. In dealing with the case, the Court of Appeal has not expressly decided this issue but will instead in the following, initially, determine the nature of the Second Memorandum. Thereafter, the Court of Appeal will consider the challenge grounds presented by Dongfang concerning the Second Memorandum, i.e. those challenge grounds that relate to the arbitrators’ dealing with the remanded issues and

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then subsequently the remaining challenge grounds referenced by Dongfang in the present case.

Through the Second Memorandum, the arbitrators corrected those errors on which the parties agreed had occurred during the arbitration proceedings. This included the incorrect inclusion of Foster Wheeler Energy Corporation and Dongfang Boiler Works as parties so that they came to fall within the scope of certain items of the operative part of the award, as well as Dongfang Boiler Group Co., Ltd.’s and Dongfang Electric Corporation’s motion for a set off not having been considered in the operative part of the award. Dongfang has maintained its challenge in these respects in the event that the Court of Appeal finds that the Second Memorandum shall be annulled. This means that the Court of Appeal will consider these challenge grounds only if the Court of Appeal determines that grounds to annul the Second Memorandum have been established.

New arbitral award or a correction of the previously rendered arbitral award?

The Court of Appeal’s decision of 5 February 2013 to stay the proceedings and grant the arbitrators the opportunity to remove grounds for annulment of the Arbitral award in two respects – that the parties Foster Wheeler Energy Corporation and Dongfang Boiler Works incorrectly had been covered by the operative part of the award and that the arbitrators in the operative part of the award had failed to consider a motion for set off – was rendered pursuant to Section 35 of the Swedish Arbitration Act. The possibility to stay challenge proceedings is provided under that Section in order to grant the arbitrators the opportunity to re-open the arbitration proceedings or take some other measure that in the opinion of the arbitrators would remove the grounds for annulment (the first paragraph of the said Section). Thus, the wording of the Section does not exclude other solutions than a new arbitral award.

The measures taken by the arbitrators in response to the Court of Appeal’s decision have been documented in the “Second Memorandum of Correction

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to the Partial Award”. In the Court of Appeal’s opinion the translation thereof into Swedish is “Den andra anteckningen om rättelse av delskiljedomen”. Already the heading indicates in the Court of Appeal’s opinion that the measure should be viewed as a correction of the arbitral award that was given on 20 October 2011 including the correction of 19 December 2011. Further, the Court of Appeal notes that there is nothing in the Second Memorandum to indicate that the arbitrators themselves intended that their decision should take the form of a new arbitral award. In addition, the Court of Appeal notes that the arbitrators already on 19 December 2011 rendered “Memorandum of Correction to the Partial Award” and that this document was referenced by the parties as a correction of the already existing arbitral award.

The preparatory works to the Swedish Arbitration Act do not provide any detailed information as to what measures the arbitrators may or ought to take after a case has been remanded (see Government Bill 1998/99:35). It is certainly noted that the arbitrators’ further dealing with the case should most often result in a new arbitral award since additional costs will generally be incurred, but what should apply in cases where a new cost allocation decision is not given is not discussed (op. cit., p. 237). Swedish jurisprudence

provides, however, that there ought not be any impediments that the arbitral tribunal after a case has been remanded, if it is suitable, deals with the issue as if it involved a correction under Section 32 of the Swedish Arbitration Act, even if the lawmakers apparently envisioned that the measures taken should result in a new arbitral award (see Lindskog, op. cit., Section 35, section 5.2.2, foot note 60). The first paragraph of Section 32 of the Swedish Arbitration Act provides the possibility for corrections if an arbitral award contains obvious inaccuracies such as typos, miscalculations or the like or if the arbitrators have incorrectly failed to settle an issue that should have been settled through the arbitral award. A permitted correction does not entail that a new arbitral award has been rendered, but merely that the contents of the corrected award has been altered (Lindskog, op. cit., Section 32, section 6.1.1).

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The second paragraph of Section 35 of the Swedish Arbitration Act provides that a court shall, if the arbitral tribunal renders a new arbitral award,

determine a new dead line for the parties to challenge the new arbitral award to the extent relevant as a result of the re-opened proceedings or as a result of the amendment of the first arbitral award. What applies when the measures taken do not result in a new arbitral award is thus not explicitly set out in the said provision. If arbitrators, after having rendered an arbitral award and in a situation where the case has not been remanded by a court, undertakes a correction under Section 32 of the Swedish Arbitration Act that exceeds what is considered permitted, then the parties to the arbitration proceedings are entitled to bring challenge proceedings against the correction decision, and in these cases it is the arbitral award in its corrected form that is subject to the challenge (cf. Lindskog, op. cit., Section 32, section 6.2.1). Against the aforementioned background, there are in the opinion of the Court of Appeal no grounds to treat measures taken as a result of a remand differently if they are done in the form of a correction or through a new arbitral award. Thus, the parties must be granted the same opportunity to react to a correction as they would have had if a new arbitral award had been rendered.

The arbitrators have, as noted above, themselves called their decision of 7 March 2013 a correction. Neither the Arbitral award nor the Second

Memorandum includes a decision on the allocation of costs. In consideration thereof and having regard to the fact that there is nothing to prevent the use of a correction, there are no grounds to interpret the Second Memorandum as anything else but a correction of the Arbitral award, i.e. the arbitral award of 20 October 2011 in its form after the correction of 19 December 2011. The arbitrators’ dealing with the remanded issues

The arbitrators’ offer/request to the parties to participate

Dongfang has objected to the fact that the arbitrators, instead of themselves taking the required measures in response to the Court of Appeal’s decision to remand the case, has ordered the parties to take those measures. The events

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leading up the Second Memorandum have not been disputed before the Court of Appeal.

Initially, the Court of Appeal notes that the Swedish Arbitration Act does not provide rules on how the arbitrators shall deal with issues that arise as a result of a case being remanded.

In Swedish jurisprudence it has been suggested that the arbitrators, following the rationale for the court’s decision to remand the case – in which the procedural errors the arbitrators have committed are recounted – should reconsider and correct their award and that the arbitrators should decide whether the parties should be allowed to present arguments on relevant issues (see Heuman, Arbitration Law of Sweden: Practice and Procedure, 2003, p. 648 f.). Also in remand situations are the arbitrators obliged to follow the joint instructions of the parties, unless valid grounds prevent it, such as situations jeopardizing legal security (see Lindskog, op. cit., Section 35, section 5.2.2 and Section 21, section 5.2.3 as well as Section 21 of the Swedish Arbitration Act).

In the decision to remand the case, the Court of Appeal explicitly stated that the parties agreed that errors had occurred with respect to Foster Wheeler Energy Corporation and Dongfang Boiler Works having been included in some items of the operative part of the award, and the Dongfang Boiler Group Co., Ltd.’s and Dongfang Electric Corporation’s motion for set off had not been considered in the operative part of the award. Based on this, it seems to the Court of Appeal only natural that the parties, as also happened, were asked by the arbitrators how they thought that the inaccuracies should best be corrected.

Nothing has been presented to indicate that the parties were not granted the same opportunity to provide their views and proposals and that the various drafts produced by Foster Wheeler were also sent to Dongfang for review. The investigation does not provide that the time granted to the parties for this review was too short.

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All arbitrators have signed the Second Memorandum. That the parties participated, or were at least granted the opportunity to participate, in the drafting of the decision does not discharge the arbitrators of their liability for the decision and, furthermore, does not entail that the arbitrators should not be deemed to have themselves corrected the arbitral award. The investigation in the case does not give cause to, from any fundamental legal security perspective, question how the arbitrators have dealt with the issue. Thus, no procedural error has, contrary to what Dongfang has maintained, occurred in this respect. Further, what has been presented on the arbitrators’ dealing with the case does not, in the Court of Appeal’s opinion, establish that the

arbitrators have been partial.

Incomplete and inaccurate recount of Dongfang’s position

Dongfang has also objected to the fact that the arbitrators, despite Dongfang’s explicit request that the arbitrators should note Dongfang’s objection to the arbitrators’ correcting the Arbitral award in the relevant manner, did not in the Second Memorandum correctly note Dongfang’s objections to the arbitrators’ dealing with the issue and the drafts of the Second Memorandum that had been produced.

The investigation in the case has established that Dongfang, during the arbitrators’ dealing with the remanded issues, objected on formal grounds to the arbitrators’ procedural order that the parties should prepare a draft document dealing with the issues arisen as a result of the Court of Appeal’s remand decision and that as a result thereof, it did not seem proper to comment on Foster Wheeler’s draft memorandum, but that Dongfang

nevertheless did not accept it. No rationale as to why Dongfang did not accept the draft was provided. It has further been established that Dongfang

requested that its position should be accurately stated in the coming decision. In the Second Memorandum Dongfang’s position was stated as follows: “…the Respondents wrote to the Arbitral Tribunal and stated that they would decline to comment on and did not accept the draft ‘Second Memorandum’

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prepared by the Claimants. The Respondents further stated that they would ‘leave it to the Arbitral Tribunal’.” (paragraph 20).

The Court of Appeal notes that the recount in the Second Memorandum on the events leading up to the decision is relatively brief and that Dongfang’s position is not fully recounted, but has, as far as the Court of Appeal

understands, instead been summarized. It can be questioned if the summary accurately reflects the nuances of Dongfang’s position, but the material aspects are in the opinion of the Court of Appeal accurately reflected. Hereby, the Court of Appeal finds that the wording of the decision does not establish that the arbitrators’ dealing with the case has been partial or that any

procedural error has occurred.

Correction and not a new arbitral award

Dongfang has further objected that the arbitrators have committed a procedural error by issuing the Second Memorandum in the form of a correction and not a new arbitral award. In accordance with the Court of Appeal’s conclusions above, it follows that the conditions to enable the arbitrators to deal with the remanded errors by way of a correction were at hand. Thus, the choice of form for the decision does not constitute a procedural error.

Additional error with respect to the parties and addition to item (e) of the operative part of the award

Finally, with respect to the Second Memorandum, Dongfang has objected that the arbitrators in the corrected operative part of the award – item (e) – has made an addition that is entirely unconnected and falls entirely outside the scope of the issues remanded by the Court of Appeal, and that the addition again incorrectly states the parties.

Foster Wheeler has admitted that the last part of item (e) of the operative part of the award as set out in the Second Memorandum shall be annulled. Since

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the parties agree thereon, the last part of this item shall in any event be annulled.

In those circumstances there is no reason for the Court of Appeal to decide on Dongfang’s objection in this respect that the arbitrators exceeded their

mandate.

The investigation in the case provides that the now relevant addition was included in one of the draft memoranda submitted by Foster Wheeler to the arbitrators and on which Dongfang had the opportunity to comment. It is also established that Dongfang did not raise any objections on the merits against this addition. The Court of Appeal does not find that the addition by itself establishes that the arbitrators did not deal with the remanded issues impartially.

Overall assessment

Thus, the Court of Appeal has not found it established that any procedural error has occurred or that the arbitrators have been partial in the dealing with the remanded issues. Therefore, none of the grounds referenced by Dongfang entail that the Second Memorandum shall be annulled. Consequently, there is no single error nor is there any combination of errors that jointly with

previously referenced challenge grounds that could lead to the complete annulment of the Arbitral award and the Second Memorandum.

Hereafter, the Court of Appeal will consider the original and still maintained challenge grounds referenced by Dongfang.

Disqualification and errors in dealing with evidence

One of the disputed issues in the arbitration proceedings was whether

damages in the form of notional royalty are possible under Swedish law. The investigation in the case has established that both parties argued and

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references to various sources and case law, but that neither party referenced any oral evidence on the issue.

Dongfang has, referring to paragraph 434 of the arbitral award, maintained that the arbitrators incorrectly treated the counsel Mr. N as a witness and expert in the arbitration proceedings and has based its decision on the issue of damages in the form of notional royalty on the information provided by Mr. N.

Further, Dongfang has maintained that the facts that the arbitrators considered Mr. N’s statements as evidence and exalted him to an “eminent expert on Swedish law”, that they in the arbitral award note that they have been persuaded by his testimony relating to an issue of pivotal importance – on notional royalty – in the case and that they have failed to comment in any way on Dongfang’s arguments on the issue establishes that the arbitrators were not impartial and that circumstances are at hand that give rise to doubts as to their impartiality.

Paragraph 434 of the arbitral award has the following wording:

Further, based on the expert evidence placed before the Tribunal, the Tribunal unanimously finds that Swedish law does not prohibit the use of “notional royalties” to provide compensation for unauthorized use of a property right. In this regard, the Tribunal is persuaded by the evidence of Mr [N], an eminent Swedish legal expert, who submitted at the Hearing that: “... it’s an overriding principle of Swedish law that if you

unlawfully utilize someone’s property, be it real estate, immaterial property or something else...the proper measure of damages is fair compensation for use.”

According to Dongfang’s own translation the above paragraph reads as follows in Swedish:

Vidare finner skiljenämnden enhälligt, baserat på den expertbevisning som har presenterats för .skiljenämnden, att svensk rätt inte förbjuder användandet av ”hypotetisk royalty” för att ge kompensation för otillåtet användande av en egendomsrätt. I detta hänseende har skiljenämnden övertygats av vittnesmålet från [N], en eminent svenskrättslig expert, som vid förhandlingen angav att ”det är en övergripande princip i svensk

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rätt att om man olagligen använder någons egendom, oavsett om de gäller fast egendom, immateriella rättigheter eller något annat... är det korrekta måttet på skadestånd skälig kompensation för användandet.”

The issue of what Swedish law provides with respect to damages in the form of notional royalties is not for the Court of Appeal to settle within scope of these challenge proceedings. Further, it is irrelevant to these challenge proceedings whether the arbitrators incorrectly assessed the contents of Swedish law in this respect. Since it is not for the Court of Appeal to undertake a review of the merits, errors in these respects cannot constitute grounds for the annulment of the arbitral award. The issue for the Court of Appeal to determine is instead whether a procedural error has occurred whereby the arbitrators considered circumstances as evidence although they were not referenced as evidence.

In the case it is not disputed between the parties that Mr. N, as well as Dongfang’s Swedish counsel Mr. E, was not referenced as a witness in the arbitration proceedings, but instead participated as counsel. The Court of Appeal notes that the arbitral award (paragraphs 61 and 62) also explicitly refers to Mr. N in this capacity, and not as a witness. Further, it can be read in the minutes from the main hearing in the arbitration proceedings and the day on which the contents of Swedish law would be discussed that the chairman greeted the parties with the information “we have our two Swedish law experts with us here this morning” and later referred to the counsel for both parties as “our two experts”. The excerpt also provides that both counsels were granted the opportunity to provide their respective opinions.

Thus, the presented information provides that the arbitrators during the main hearing treated the counsel for both sides in the same manner and in a way that does not support the view that they considered them referenced as

evidence. The only thing that could indicate that the arbitrators perceived Mr. N’s statements as evidence is the wording set out in paragraph 434 in the arbitral award that “the Tribunal is persuaded by the evidence of Mr. [N]”

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through the use of the word “evidence”. The Court of Appeal notes that neither this paragraph nor any other paragraph in the arbitral award clarifies what the parties have maintained or the evidence they presented on the issue of notional royalty. In paragraph 80 the arbitrators have, however, noted that everything that the parties have presented has been considered, even if it is not explicitly recounted in the arbitral award. Against this background, the Court of Appeal finds that the reference set out in paragraph 434 to Mr. N’s statement mainly must be seen as a reference to his arguments and that the arbitrators in their review of the merits of the issue, based on the information presented, have adhered to the opinion of Mr. N. Having reached this

conclusion it has not been established that the arbitrators have breached the procedural rules applicable to the proceedings in the manner maintained by Dongfang in this respect.

Based on the interpretation of paragraph 434 chosen by the Court of Appeal as set out above, the reference to Mr. N as an “eminent Swedish legal expert” does not indicate that the arbitrators have made irrelevant considerations in reaching their decision, that they have not been impartial nor that

circumstances were at hand that would call into question their impartiality. The Court of Appeal has also noted that the arbitrators in paragraph 175 have used the word “eminent” to describe three “PRC law experts”.

The aforementioned means that the Court of Appeal has not found it

established that the arbitrators have breached the procedural rules applicable to the proceedings or that the arbitrators have been partial.

Invalidity objections based on Swedish and Chinese law

Dongfang has maintained that the arbitrators failed to consider Dongfang’s invalidity objections based on Swedish as well as Chinese law related to the motion for damages in the form of notional royalty for alleged breaches of the parties’ license agreement. In support of its motion in this respect, Dongfang

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has referenced what was submitted to the arbitrators in a submission of 15 July 2010 as well as what was presented during the main hearing.

In paragraphs 191-194 of the arbitral award the arbitrators consider, according to the heading preceding paragraph 191, whether the agreed limitations in the use of the technology covered by the parties’ license agreement violate Swedish law. Paragraph 191 recounts Dongfang’s

invalidity objections based on Swedish law and in the subsequent paragraphs the arbitrators note their conclusions.

In general, it can be noted that the grounds provided in the arbitral award are not particularly exhaustive, but instead rather brief. This is true also for the now relevant paragraphs of the arbitral award. In the case law NJA 2009 p. 128, the Supreme Court determined what requirements the grounds to an arbitral award must meet. The Supreme Court stated, amongst other things, that the provision of sufficient grounds in arbitral awards is a safeguard of legal security since it will force the arbitrators to analyze the relevant issues and the evidence, but that the value of complete grounds having been provided must be set into relation to the value of arbitral awards being final and unappealable. The Supreme Court held that only a complete lack of grounds, or grounds that, having regard to the circumstances, must be deemed so incomplete that they can be equated to a complete lack of grounds can entail that a procedural error shall be deemed to have occurred.

It is true that the arbitrators cannot be said to have provided a complete and comprehensive picture concerning the invalidity objections based on Swedish law. However, based on the case law of the Supreme Court, the Court of Appeal cannot find that grounds exist to hold that a procedural error has occurred because of lacking grounds. In addition, as the Court of Appeal has noted above, the Court of Appeal shall not undertake a review of the merits of the case. Thus, a potentially inaccurate assessment by the arbitrators of the merits in this respect does not affect the outcome of these challenge

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not find that a procedural error subject to challenge has occurred with respect to the invalidity objections based on Swedish law.

As regards Dongfang’s claim that the arbitrators have failed to consider Dongfang’s invalidity objections based on Chinese law, the Court of Appeal finds that the documentary evidence submitted by Dongfang in support hereof fails to establish that Dongfang sufficiently clearly has referenced any

internationally binding peremptory Chinese rules that would limit the applicability of the law chosen by the parties, i.e. Swedish law. Already on these grounds the Court of Appeal finds that no procedural error with respect to invalidity objections based on Chinese law has been established.

Unpaid royalty

Before the Court of Appeal, Dongfang has objected to that the arbitrators in the first stage of the arbitration proceedings settled Foster Wheeler’s motion for unpaid royalties. Dongfang has maintained that it was clarified only after the main hearing had been finished for a long time that the motion would be settled, meaning that Dongfang was not granted the opportunity to present its case on these matters. Dongfang has also maintained that the arbitrators incorrectly assumed that the amount as such was undisputed between the parties.

The investigation in the case has established the following. Foster Wheeler specified its claim for unpaid royalties only barely two months prior to the main hearing in the arbitration proceedings. At the same time, Foster Wheeler lodged several new claims that concerned other projects than those of the original motions. At this stage, Dongfang moved that the new motions should be disallowed. In procedural decisions of 20 and 28 March 2011 the

arbitrators determined that the new motions should be tried in a second stage of the arbitration proceedings. Through procedural orders of 20 and 28 March 2011 the arbitrators clarified explicitly what would be considered in the first stage, without mentioning the claim for unpaid royalties. To clarify the earlier procedural orders, the arbitrators on 2 June 2011 announced that the arbitral

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