The International Journal of Public and Private Arbitration
Full Contents List
- Introduction
- Regional Overviews
- Country Overviews
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The European & Middle Eastern Arbitration Review 2008
Section 2: Country Overviews
According to new figures released by the Central Chamber of Commerce of Finland,
the country’s leading arbitral institute, requests for arbitration have
increased by 30 per cent in 2007 compared to 2006.1 This shows that arbitration
is, despite the costs involved in many cases, a favoured means of dispute resolution,
for the classic reasons of speed, expertise and privacy. Arbitration is receiving
increasing interest and public exposure and expectations of its quality and
efficiency rise accordingly. The latest figures from the Chamber suggest arbitrations
conducted by its rules take on average eight months.
Arbitration’s ascendance also raises questions about its boundaries. The
Chamber has noted that, aside from the customary corporate acquisition-related
disputes, disputes referred to arbitration concerning IP rights, international
trade and shareholder agreements have especially increased in number. IP rights
is a field of law in which the issue of arbitrability and the boundaries of
arbitration have been much debated in Finland. Another issue that has arisen
is that of validity and adjustment of arbitral clauses.
We will therefore review a few areas of law and types of litigation in which
the issue of arbitrability has arisen in Finnish debate. In addition, the validity
an adjustment of arbitral clauses will be reviewed in light of Finnish case
law.
Arbitrability
The fundamental provision regarding arbitrability in the Finnish Arbitration
Act of 19922 is section 2:
Any dispute in a civil or commercial matter which can be settled by agreement
between the parties may be referred for final decision by one or more arbitrators.
Furthermore, the importance of arbitrability and the potential consequences
where it is not at hand emerge in section 40.1(1) of the same Act:
1. An arbitral award shall be null and void (1) to the extent that the arbitral
tribunal has in the award decided an issue not capable for settlement by arbitration
under Finnish law [...]
These provisions show that in both domestic and international arbitrations
it is crucial to consider the issue of arbitrability at the stage of considering
procedural options. The specific issue to be considered is the enforceability
of the ultimate decision or award. Since awards may be declared null and void
to the extent that they are not arbitrable, the rules on arbitrability of the
countries in which the parties consider it likely that they may have to enforce
a future award have to be borne in mind.
In the Finnish legal doctrine, freedom of contract hence forms the basis for
arbitration in civil and commercial matters as a dispute resolution mechanism
outside the scope of official court proceedings. Some rules that regulate corporations
are intended to protect a public good and achieve a public aim. Such mainly
administrative or public law issues are naturally not arbitrable. The arbitrability
of competition law issues establishes a widely discussed and complex field.
Although the specific competition law remedies cannot be awarded in arbitration,
there is basically no obstacle to investigate claims and arguments based on
competition law in Finnish arbitration. However, the arbitration award rendered
in such a case is binding between the parties only. It does not restrict the
competition authorities’ possibility to establish opinions and rule on
the same issues later. Further, the Finnish Consumer Protection Act expressly
provides that arbitration clauses in consumer contracts are not binding on the
consumers. A company can agree on arbitration with a consumer only after the
dispute has arisen.
A further facet of the freedom-of-contract limit to arbitrability arises from
the fact that settlement cannot be made in matters where a third party’s
right is at stake. Therefore, where a third party’s right is directly
affected by the issue in dispute, the matter is not arbitrable, regardless of
its civil or commercial law nature. Under Finnish law, matters that might be
of a private law nature but cannot be settled because of mandatory rules are
called indispositive. There is always a public good or legal-political justification
for this curtailment, which can likened to public policy definitions found in
other jurisdictions to the limits of arbitrability.
Arbitrability forms a specific ground for nullity of the arbitral award, separate
from public policy, under section 40.1 of the Arbitration Act. However, the
interpretation of these two grounds of nullity derives partly from the same
aims and point of view. Arbitrability, however, is perhaps more concrete and
in essence the question of interpretation revolves around what are the mandatory
law provisions that require public judicial control and therefore fall outside
the scope of arbitration.
The Arbitration Act does not give any explicit guidance for civil or commercial
cases in which issues of a public or mandatory law nature (eg, competition law)
surface adjacent to the actual dispute or where issues of a public law nature
need to be resolved as a primary issue to the actual dispute. Nevertheless,
commentators are agreed that the applicability of a provision of mandatory nature
does not in itself lead to lack of arbitrability.3 However, the application
by the arbitrators of a mandatory rule and the resolution of a primary issue
that has public law elements may only have legal effect inter partes.
Intellectual property and real estate disputes
Here substantive issues and the material limits of arbitration will be briefly
analysed from a Finnish perspective, in relation to two areas of commercial
law that are topical in the Finnish market. IP rights disputes are topical because,
as noted, there has been a rise in such arbitrations in 2007. Real estate disputes
are topical because of the marked growth in the property investment market in
Finland recently and the potential for increased numbers of disputes.4
Many types of contracts of a commercial nature may include provisions revolving
around intellectual or industrial property rights (eg, licence agreements, franchising
agreements, corporate acquisitions and research and development agreements,
as well as employment agreements). Many disputes also concerning the specific
IP issues relevant to such contracts may be referred to arbitration, eg, in
relation to contractual damages for breach of an obligation concerning IP rights.
However, the validity or nullity and accompanying registration or revocation
of IP rights are matters for the public authorities and are therefore excluded
from the scope of arbitration. In addition, claims relating to infringement
where the public courts solely may provide enforceable sanctions of both a civil
and criminal law nature are left outside arbitration. Because these non-arbitrable
IP disputes may require special expertise, certain matters relating to patent,
trademark, trade name, design, utility model, layout design of integrated circuit
or copyright of radio and television transmissions have been entrusted to the
exclusive jurisdiction of the Helsinki District Court.
Notably, copyright is not subject to registration in Finland. Therefore disputes
relating to the validity and infringement of copyright are arbitrable. Section
54 of the Copyright Act even refers to arbitration for certain types of dispute
in relation to copyright.
The Market Court, which is a special court in the Finnish court structure, has
jurisdiction to rule in matters concerning improper business practices and to
impose prohibitions with conditional fines.5 Such specific remedies cannot be
awarded in arbitration. However, damages claims based on unfair business practices
may be resolved in arbitration.
In matters relating to real estate, the limits to arbitration are often unclear
because the legal relationships often have connections to public law. In relation
to formation of real estate, zoning, development of land as well as building
and easement matters, the public connection is strong and there is seldom a
possibility of arbitration. However, as a case from the Supreme Court (KKO 1986
II 162) demonstrates, the development agreements between municipalities and
private parties may be subject to arbitration. The lessor had in a lease agreement
for the lease and development of land agreed to pay the landlord (ie, the municipality)
a fee to be determined later for reconditioning costs. The Supreme Court found
that the arbitral tribunal had not exceeded its competence, since the compensation
fee was not based on a particular statute or any public law fee.
Title registration of ownership to a property and registration of specific rights
and mortgages encumbering a property fall outside arbitration because registration
matters concern public government. Basic disputes regarding the cancellation
or invalidity of an acquisition of real estate or the interpretation of the
related agreements, as well as disputes on the correct purchase price, are generally
arbitrable (although other views have also been expressed due to the involvement
of the general courts in the real estate ownership registration system). However,
an arbitral award in such a dispute is likely to be binding only inter partes
until the outcome has been officially registered. For example, the Supreme Court
has recently confirmed (KKO 2007:18) that the realisation of a redemption clause
in a real estate sale agreement regulating a right of first refusal, in the
future event that the purchaser would want to sell the property, and a mechanism
for the determination of the redemption price was something that the parties
could freely settle and therefore arbitrable.
Similarly to the situation for registration of real estate title, the registration,
amendment or cancellation of a mortgage encumbering a real estate requires the
participation of and contributory action by the registration authorities. Therefore
arbitratrability is excluded. In contrast the pledge agreement itself between
the mortgagor and mortgagee and its terms may otherwise be subject to arbitration.
Finally, in relation to real estate, the lease of land the parties may agree
that disputes arising under the lease agreement be referred to arbitration.
Adjustment
According to section 36 of the Contracts Act, a contract may be adjusted or
set aside if it is considered unreasonable. Since agreements to arbitrate or
arbitration clauses are considered contracts within the meaning of the Contracts
Act, the question has naturally arisen whether these may be adjusted or set
aside as unreasonable. The Supreme Court had in an earlier case (KKO 1996:27)
held that under the Contracts Act it is per se possible to adjust an arbitral
clause that is considered unreasonable.
In that case, the relevant arbitral clause was included in a cooperation agreement
between a big corporation and a small business or tradesman. The perceived weaker
party argued that it had not been able to influence the standard arbitration
clause at the stage of negotiation and had not understood the unreasonability
of the clause in the case that it would not have financial means to make claims
before an arbitral tribunal. However, in that specific case the Supreme Court
did not consider the arbitral clause to be unreasonable. The Court in particular
referred to the fact that the parties were both commercial ones, albeit in unequal
negotiating positions, as well as the fact that the weaker party had had time
to assess the clause and had legal assistance in evaluating the contract before
signing. In addition such a clause was not uncommon or surprising in the relevant
type of contract. Furthermore, the Court held that an arbitration clause could
be unreasonable, eg, where the amount in dispute is small and the dispute is
a simple matter to resolve, in which case the costs of arbitration might be
(taking into account the whole scenario) unreasonable. However, in the case
at hand the Supreme Court seems to have considered that the claim was neither
a small nor a simple one.
The case was generally perceived as a sign that the Supreme Court only embraces
adjustment of arbitral clause between commercial parties in very limited circumstances.
However, the Supreme Court has in a subsequent case (KKO 2003:60) ruled that
an arbitration agreement was unreasonable and could be set aside. The facts
of the case, which have been widely analysed, are as follows. The party claiming
that the arbitral clause was unreasonable was a private entrepreneur, and the
arbitration agreement was included in an investment service agreement. The Supreme
Court held that it had been established that the entrepreneur had no means or
income and was bankrupt. This fact was relevant firstly because he would not
be able to pay the security habitually required by the arbitral tribunal in
advance of commencement of arbitral proceedings. Owing to his lack of funds,
the entrepreneur might, as a consequence of the practice of requiring security,
not be able to bring his claims to the arbitral tribunal; therefore he would
lack practical means of judicial recourse, ie, access to justice. The Supreme
Court therefore found that an arbitral clause could be adjusted if it would
in practice lead to a result where a party was unable to bring his claims.
The fact that the entrepreneur had no means or income was relevant secondly
because he would not be able to pay the fees of counsel and would not, as a
lay person, have sufficient expertise to advocate his case. Hence, the shortcoming
in the quality of his legal protection could in practice be to some extent better
served by legal aid available in court proceedings. Both access to judicial
recourse and access to legal assistance are fundamental rights and permeate
the ruling, even though the Supreme Court did not specifically refer to section
21 of the Finnish Constitution concerning protection under the law and fair
trial.6 However, this case has not been seen to undermine the fact that arbitration
clauses in general are not considered unreasonable, and that adjustment will
only take place in limited and exceptional cases based on a holistic assessment
of the facts. It has also been justifiably argued that efficiency of justice
arguments should favour exactness in criteria rather than flexibility regarding
adjustment of arbitral clauses.7
The question of adjustment of an arbitration clause naturally arises in relation
to consumer contracts. Due to a provision in the Consumer Protection Act an
arbitration clause does not bind the consumer if it has been entered into before
the dispute arose. Therefore, the question has already been settled by legislation.
Another type of contract for which the issue of adjustment might arise is employment
contracts. Arbitration clauses are rather typical in director contracts and
are in general considered valid and enforceable in such contracts.
* * *
The answer to how far public interest limits arbitration cannot be exhaustively
rendered. Arbitrability limits the realm of civil and commercial disputes that
may referred to arbitration. In the fields of real estate and IP described above,
it is the exact substantive issues that are in dispute and the claims and remedies
sought that affect the demarcation between arbitrability or not. Naturally,
the difficult cases are of most interest because they shape the boundaries of
doctrine and practice. Issues of enforceability and inter partes or erga omnes
effects are also importantly connected to arbitrablity.
In addition to arbitrablity, public interest limits to the availability of arbitration
may be actualised through adjustment of arbitral clauses. Exceptional circumstances
must be present for adjustment to be implemented against an arbitration clause
and such circumstances would be highly unlikely in international arbitration
matters between two companies. Nevertheless, the cases demonstrate that the
public interest of access to justice demands that the dispute resolution system
– including arbitration – functions as a whole to uphold the fundamental
rights of its users.
Notes
1. The Arbitration Institute of the Central Chamber of Commerce
of Finland publishes statistics on arbitration proceedings conducted under its
auspices:http://www.arbitration.fi/tilastoja.html.
Figures for 2007 are not complete but the information referred to was made available
in a press release dated 9 August 2007.
2. Arbitration Act 1992/967. An unofficial translation of the
Act into English (with amendments up to 1999 taken into account) is provided
by the Ministry of Justice and can be accessed from the FINLEX website, http://www.finlex.fi/en/laki/kaannokset/1992/en19920967.
3. Eg, Gustaf Möller, Välimiesmenettelyn perusteet
(Helsinki, Lakimiesliiton Kustannus, 1997), pp15-17, and several contributions
in Heikki Halila, Mika Hemmo & Lena Sisula-Tulokas (eds), Juhlakirja Esko
Hoppu 1935-15/1-2005 (Helsinki, Suomalainen lakimiesyhdistys, 2005).
4. For information on the property investment boom and international
investment in the Finnish property market, see the monthly bulletins, eg, http://www.kti.fi/pdf/fp_monthly_september_07.pdf,
available on the website of the Institute for Real Estate Economics.
5. Unfair Business Practices Act 1978/1061 and Market Court
Act 2001/1527. See also the website of the Market Court: http://www.oikeus.fi/markkinaoikeus/.
6. Constitution of Finland 1999/731, section 21: “Everyone
has the right to have his or her case dealt with appropriately and without undue
delay by a legally competent court of law or other authority, as well as to
have a decision pertaining to his of her rights and obligations reviewed by
a court of law or other independent organ for the administration of justice.
Provisions concerning the publicity of proceedings, the right to be heard, the
right to receive a reasoned decision and the right of appeal, as well as the
other guarantees of fair trial and good governance shall be laid down by an
Act.”
7. Thomas Wilhelmsson in Halila, Hemmo & Sisula-Tulokas
(eds), Juhlakirja Esko Hoppu, pp416, 420-421.
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