101 Cases and 110 Years: Binary Year of Finnish Arbitration

In summary

This article takes a closer look at the new record of 101 cases filed under the FAI Rules in 2020 and preparing for the 110th anniversary year of the Finnish Arbitration Institute. During the same year, the Finnish Supreme Court issued 101 precedent decisions and this article analyses one Supreme Court judgment on arbitration agreements and transfer of business. Finally, the FAI amends its Rules to expedite proceedings.

Discussion points

• FAI arbitration
• FAI Arbitration Rules 2020
• FAI Statistics 2020
• Finnish Arbitration Act
• FAI arbitration and covid-19
• Case study: arbitration agreements and transfer of business

Referenced in this article

• FAI Arbitration Rules 2020
• FAI Expedited Arbitration Rules 2020
• FAI Statistics 2020
• FAI Arbitrator’s Guidelines for Proceedings Under the Arbitration Rules of the Finland Chamber of Commerce
• Finnish Arbitration Act

Introduction

Finnish society is based on trust. It is not a coincidence that Finland ranks consistently among the top nations in the world in terms of good governance and in the high levels of trust of their citizens in public institutions and in the Finnish legal system.^[1] The Finnish people’s trust in the police and tax authority is at the highest level in the world. In addition, or as a consequence of that, in 2021 Finland has been ranked, for the fourth consecutive year, the happiest country in the world according to the United Nations World Happiness Report.^[2]

With such high levels of trust and happiness, one may argue that Finland is a perfect ground for fair play legal battles. It is not a surprise that the Arbitration Institute of the Finland Chamber of Commerce had its record number of cases filed in 2020 (101 cases). Coincidentally, the Supreme Court of Finland issued 101 precedent rulings in 2020.^[3]

The Finnish Arbitration Institute

The Arbitration Institute of the Finland Chamber of Commerce^[4] (FAI) is the leading dispute resolution institute for international parties in Finland. The FAI was established in 1911 but has throughout kept up to date with international developments in arbitration and has amended its rules twice over the past decade.

Changes to FAI Arbitration Rules

The first change to the Arbitration Rules introduced in 2013 was part of a wider trend of revisions of arbitral rules that included the ICC Rules (2012), the UNCITRAL Arbitration Rules (2010), the SCC Rules (2010) and the Swiss Rules of International Arbitration (2012). Inspired by the European revisions conducted under many arbitral institutions, the 2013 FAI Rules^[5] included a revision of the Arbitration Rules (that were in force since 1993), the Expedited Arbitration Rules^[6] (that were in force since 2004) and a new set of emergency arbitrator provisions (which were a new feature introduced in 2013).

After the revision in 2013, the FAI Rules received positive feedback and were adequate to the Finnish market needs and demands. In 2020, however, a working group set up by the FAI collected feedback and proposals for the development of the 2013 Rules from a broad group of stakeholders domestically and internationally. The revision did not focus on reforming the 2013 Rules because the 2013 Rules had proven to be successful and suitable. Instead, the 2020 FAI Arbitration Rules^[7] focused on increasing speed, efficiency and flexibility, which are topics that rank higher every year in surveys dedicated to arbitration (such as the 2021 International Arbitration Survey: Adapting Arbitration to a Changing World).^[8]

The 2020 FAI Arbitration Rules

The most welcomed amendment concerns the enhanced flexibility between the FAI Arbitration Rules and the FAI Expedited Arbitration Rules. Hoping to increase the interest of users in expedited proceedings, which has been residual since the entering into force of the 2004 Expedited Arbitration Rules, the FAI has made the intersection between ‘regular’ arbitration and expedited arbitration (more) seamless.^[9] Subject to the consent of the parties, a case under the FAI Arbitration Rules can be referred to be conducted under the FAI Expedited Arbitration Rules, and vice versa, prior to the confirmation of any arbitrator. In addition, the FAI itself may also, on its own motion prior to the confirmation of any arbitrator, request the parties to submit their comments on the most suitable format of arbitration to the case at hand.^[10] Finally, the model arbitration clauses have also been amended to consider this change.^[11]

To ensure an expeditious procedure throughout the arbitration proceedings, the 2020 FAI Arbitration Rules also include a time limit of 21 days^[12] (or 14 days in expedited arbitration)^[13] from the date on which the arbitral tribunal received the case file from the FAI to hold a case management conference. The inclusion of the 21-day indicative period was an innovation from the 2013 FAI Rules. This is a highly recommended step in arbitral proceedings seeing that during the case management conference, the parties and the arbitrator (or arbitrators) agree on the conduct and timetable of the proceedings among other procedural matters. The role of the arbitrator in conducting the arbitration expeditiously and cost-efficiently is highlighted in the 2020 Arbitrator’s Guidelines for proceedings conducted under the Arbitration Rules of the Finland Chamber of Commerce.^[14]

Nevertheless, the 2020 FAI Arbitration Rules also highlight the parties’ own responsibility in the conduct of the proceedings by explicitly stating that where a party has failed to comply with the orders or other directions of the arbitral tribunal, the tribunal may take such failure into account in its allocation of the costs of the arbitration.^[15]

The appointment of a three-member tribunal can sometimes be challenging and it may take longer than anticipated by the parties and the FAI. Having this concern in mind, the FAI shortened the period for the parties to nominate the presiding arbitrator from 15 to 10 days.^[16] Correspondingly, the time limits reserved to nominate all three arbitrators have been shortened from 15 days to 10 days in cases where the Institute has first decided on the number of arbitrators.^[17] In addition, the counting of deadlines has been altered to commence at earlier stages.

With a focus on modernising the procedures, a new rule on electronic documents was introduced amending an outdated requirement for hard copies in respect to the request for arbitration and the answer to the request for arbitration.^[18]

Finally, a number of aesthetic adjustments were also introduced (eg, on advance on costs,^[19] filing fees^[20] and confidentiality^[21]) but the overarching theme was clearly on making the procedures faster and more flexible.

The 2020 FAI Arbitration Rules have been very well received by the legal community and the effects of the changes can already by seen in the FAI statistics of last year.

FAI Statistics 2020

As mentioned, the FAI had a record number of 101 cases filed in 2020.^[22] The FAI’s leadership in the Finnish legal market, in particular for international parties seeking resolution of disputes in a final and effective way, is clear. International parties have found comfort in having a first-class arbitration institute offering dispute resolution services to parties from all over the globe. In addition, the 2020 FAI Rules have been published in English, Finnish and Swedish, but the 2013 FAI Rules have been published in English, Finnish, Swedish, Russian, Spanish and German. For foreign parties who do not speak the language of local courts (ie, Finnish or Swedish) this is an important advantage. In addition, the case managers currently working at the FAI speak English, Finnish, Swedish, Spanish and German. This is seen as a consolidation of the FAI as a leading institution in dispute resolution in the Nordics and in Europe. Finally, the leading commentary on the FAI Rules^[23] has also been published in a bilingual edition (Finnish/English), which provides guidance for international parties on the interpretation of the FAI Rules.

The number of cases at the FAI has oscillated between 60 and 80 between 2016 and 2019.^[24] However, in 2020 the FAI saw the filing of 75 cases under the Arbitration Rules, 21 cases under the Rules for Expedited Arbitration and four ad hoc cases. Over the past decade (2010–2020) the number of requests filed at the FAI totalled 760.^[25]

The percentage of international cases in 2020 (27 per cent) increased by 11 per cent when compared to the numbers of 2019. While the majority of parties was from Finland, other parties were from the Netherlands, Bahrain, Ireland, Italy, Norway, Poland, Romania, Sweden, Singapore, Switzerland, Estonia, the United Arab Emirates and the United Kingdom.^[26]

The subject matter of disputes in 2020 was mainly threefold: shareholders’ agreements (20 per cent), construction (16 per cent) and company acquisition or sale of business (14 per cent). These three subjects together account for 50 per cent of subject matters of disputes. However, other subject matters such as IT, franchising, subcontracting, agency, consulting, and delivery and supply agreements make up the other half.^[27]

A sole arbitrator was the preferred composition of the arbitral tribunal (88 per cent of cases). However, this number was lower than in 2019.^[28] The FAI has also been committed to increasing the number of women appointed as arbitrator. With this aim, in 2020, the FAI directly appointed 26 per cent of female arbitrators, which is a much-welcomed step towards diversity in the world of arbitration.

Finally, the statistics for 2020 show that the median duration of arbitrations under the Arbitration Rules is nine months and the median duration of arbitrations under the Rules for Expedited Arbitration is three months.^[29] These are both in accordance with the time limits to render an award under both rules. The fact that the median is in line with the time limits in the rules provides a great competitive advantage when compared with other arbitral institutions that have longer time limits to render awards such as the SCC^[30] and ICC.^[31]

The Finnish Arbitration Act

The Finnish Arbitration Act^[32] has been in force since 1992 and while not problematic, it is not up to date. In addition to the Arbitration Act, Finland has ratified and enacted the 1958 New York Convention, and ratified the ICSID Convention.

Both domestic and international arbitration proceedings in Finland are currently governed by the Arbitration Act. While the Arbitration Act largely mirrors the provisions of the UNCITRAL Model Law on International Commercial Arbitration 1985, it nevertheless diverges from it in some respects. One notable example of such divergence is the unlimited possibility for an unsuccessful party to request the final award to be declared null and void at any time in the foreseeable future. Other such examples are the lack of express powers on arbitrators to order interim measures and the prospect of lengthy setting aside proceedings resulting from the possibility to appeal from the district court’s decision to the court of appeal and ultimately to the Supreme Court.

In January 2019, however, the Finnish Ministry of Justice announced the commencement of the revision process of the Arbitration Act. The announcement followed the FAI’s proposal in 2016 to replace the 1992 Act with the UNCITRAL Model Law and the Ministry’s subsequent consultation of the Finnish legal practitioners and businesses on the matter. The Ministry has established a working committee that is due to study options for the reform until the end of 2021, when the working group will present their report.^[33] After this, the legislative process will enter a new stage.

While the picture looks grim due to the aging of the Arbitration Act, the truth is that there are high hopes for the reform and the status quo confirms that national courts are largely arbitration-friendly. However, as recognised by the Ministry of Justice when announcing the establishment of a working group on the matter, the reform of the Arbitration Act will improve Finland’s competitiveness in the field of international arbitration.^[34]

Arbitration and covid-19

The covid-19 pandemic had an impact on our daily lives but also in the activities of businesses and institutions. Arbitration has been also affected by the restrictions imposed by the pandemic on the movement of people and the ability to gather in hearing rooms.

While the FAI did not issue separate guidelines on the covid-19 pandemic, it did release a note on its website addressing covid and FAI arbitrations.^[35] The 2020 FAI Arbitration Rules included the possibility to send documents electronically^[36] and to hold virtual hearings^[37] and case management conferences.^[38]

In any event, in the note released on FAI’s website, the FAI recognises that ‘The arbitral tribunal has broad procedural rights to decide on the organisation of hearings.’^[39] This shows the flexibility of the FAI procedures and the capacity that the institute and the parties have to agree on the most suitable way to conduct proceedings. In addition, the 2020 FAI Arbitration Rules include a time limit of nine months to render the award (the time limit in the 2020 FAI Expedited Arbitration Rules is three months). While as described above the median duration of an FAI Arbitration in 2020 was nine months, tribunals are able to request an extension from the institute after consulting the parties and providing reasons for the extension.^[40]

Case study: arbitration agreements and transfer of business

In December 2020, the Supreme Court of Finland rendered a judgment regarding the validity of an arbitration clause in connection with a transfer of business.^[41] The case concerned the transfer of a business, a distribution agreement and the arbitration clause contained therein. The distribution agreement and the arbitration clause were originally drafted and negotiated between the transferor and the agent. The transferee and the agent continued to conduct mutual business for several years after the initial business transfer.

After a disagreement regarding termination, the agent initiated arbitration against the transferee in accordance with the arbitration clause in the distribution agreement included in the transfer of business. The transferee objected to the jurisdiction of the FAI by arguing that it was not a party to the distribution agreement signed between the transferor and the agent. The FAI Board, on the basis of section 15.1 of the 2020 FAI Arbitration Rules (previously section 14.1 of the 2013 FAI Arbitration Rules) decided that the distribution agreement in question had not been transferred from the transferor to the transferee. In fact, based on documents submitted to the FAI Board, the transferor specifically informed the agent that the distribution agreement would not be transferred to the agent. Thus, the requirement of prima facie jurisdiction in section 15.1 of the 2020 FAI Arbitration Rules was not satisfied and on this basis the FAI Board denied jurisdiction over the matter.^[42]

After judgments from the court of first instance and appeal court, the Supreme Court granted a leave to appeal and the Supreme Court of Finland ruled that there was no valid arbitration agreement concluded between the transferee and the agent. To have a valid arbitration agreement between the transferee and the agent, there would need to be a separate acceptance by the transferee concerning the arbitration clause. The Supreme Court of Finland seems to point to the doctrine of separability while at the same time indicating that the transferee and the agent were not bound by the distribution agreement as a whole.

The case is relevant in Finnish jurisprudence as it is a case with many levels of decision. The District Court of Helsinki ruled in favour of the agent and the Helsinki Court of Appeal upheld the judgment. However, the decision from the Supreme Court of Finland seems to side with the FAI Board’s ultimate decision of lacking jurisdiction over the matter.

Conclusion

Over the past few years, Finland has seen a tremendous development in international arbitration. The well-prepared and professional FAI and the first-class FAI Arbitration Rules have contributed to the inclusion of FAI arbitration clauses in virtually all major contracts between a Finnish and an international party. In addition, the flexibility to choose between expedited arbitration and ‘regular’ arbitration is a much-welcomed addition.

The current working group at the Ministry of Justice in charge with updating the Finnish Arbitration Act has gathered a lot of support and engagement from the legal community. The reform of the Act was supported by more than 200 lawyers and businesses who signed a petition in 2018 in favour of the reform. The final results of the working group are yet to be seen, but if the group follows the majority of the opinions shared by the legal community it is likely that Finland will adopt an UNITRAL Model Law type of arbitration act.

An element that helps consolidate these developments are the national courts, which are generally arbitration-friendly. In Finland, there are also many lawyers who decide to be trained at the bench and return to private practice after one year. In addition, Finnish courts usually facilitate interim relief in a short period of time and in cases where the underlying agreement includes an arbitration clause. To increase know-how and keep legal practitioners updated, every year the FAI organises educational training for lawyers called the Finnish Arbitration Academy. In 2021, the seventh Arbitration Academy will be held, which will gather 39 participants. To date, more than 180 legal professionals (eg, lawyers, judges, in-house counsel) have completed the Academy.

Last but not least, Finland has been a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards since 1962. This makes it easier to enforce and recognise awards rendered abroad in Finland and vice versa. As an EU member, the EU regulations governing jurisdiction and the recognition of foreign judgments are part of the Finnish legal system.

We started this article by mentioning that the basis of Finnish society is trust. However, this basis is complemented with a business-minded approach that does not have leave any room for nonsense. The 2020 Global Innovation Index ranks Finland in seventh place among 131 countries and economies around the world. In 2021, arbitration in Finland will open a door to new businesses and start-ups by having the largest and most important international arbitration event in Finland dedicated to start-ups and arbitration: the 2021 Helsinki International Arbitration Day.^[43] The event will bring together more than 200 participants from all over the world.

Notes