Recent Arbitration Developments in Finland

In summary

This article addresses recent developments in Finnish arbitration. In particular, it takes a closer look at recent case statistics of the Finnish Arbitration Institute, some practical experiences in applying the FAI Arbitration Rules of 2020, as well as the prevailing arbitration-friendly approach visible in recent case law from the Finnish courts. It also touches upon the current status of the proposed revision of the Finnish Arbitration Act, as well as the FAI’s recently initiated project of partially revising its Arbitration Rules.

Discussion points

• FAI arbitration
• Changes to the FAI Arbitration Rules and the ongoing partial revision
• FAI Statistics 2022
• Details of the proposed revision of the Finnish Arbitration Act
• Finnish arbitration-related case law

Referenced in this article

• FAI Arbitration Rules 2020
• FAI Expedited Arbitration Rules 2020
• FAI Statistics 2022
• Finnish Arbitration Act

Introduction

Finnish society is based on trust. It is not a coincidence that Finland consistently ranks 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 2023 Finland was ranked, for the sixth consecutive year, the happiest country in the world according to the United Nations World Happiness Report.^[2]

Furthermore, the Finns are often known for their strong sense of responsibility as well as their integrity and thoroughness. Taking all of the above into account one may argue that Finland is an ideal place for fair play legal battles.

The Finnish Arbitration Institute

The Arbitration Institute of the Finland Chamber of Commerce^[3] (FAI) is the leading dispute resolution institute for international parties in Finland. The FAI was established in 1911 and has, throughout the years, kept up to date with international developments in arbitration and has thus far amended its rules twice over the past decade.

In addition to administering arbitrations and mediations, the FAI ongoingly organises education and training for lawyers, with the objective of enhancing dispute resolution skills and securing the availability of high-quality legal services for resolving disputes effectively. Furthermore, the FAI Arbitration Rules will be used in the 32nd Willem C. Vis International Commercial Arbitration Moot.^[4]

Changes to the FAI Arbitration Rules and the ongoing partial revision

Thus far, the FAI has revised its Arbitration Rules twice during the 21st century. 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 Arbitration Institute of the Stockholm Chamber of Commerce Rules (2010) and the Swiss Rules of International Arbitration (2012).

In 2020, 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 updates made by way of the 2020 FAI Arbitration Rules^[5] focused on further 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’).^[6]

In order to continuously correspond to recent developments and societal changes, the FAI has recently launched a project to update the schedule on the fees and costs of arbitration (Appendix II of the 2020 FAI Arbitration Rules: Schedule of Arbitration Fees and Costs). This partial revision has been initiated in 2023, with the main purpose of updating the schedule of arbitration fees and costs to better correspond to the current level of expenditure. While the main focus of the revision is on arbitration fees and costs, the FAI is simultaneously also collecting feedback on the general functionality of the 2020 FAI Arbitration Rules and the 2020 FAI Expedited Rules. In light of the received feedback, the FAI will assess the situation and make any minor amendments deemed necessary. The ongoing rule revision does not, however, constitute a comprehensive reform of the generally well-functioning 2020 FAI Arbitration Rules and 2020 FAI Expedited Rules.^[7]

Practical experiences of working with the FAI Rules of 2020

Since the updated FAI Arbitration Rules came into effect on 1 January 2020, the institute has continuously maintained a solid caseload. It saw a total of 80 requests for arbitration in 2022 and 89 requests in 2021. Out of the 2022 caseload, 75 per cent were cases under the Arbitration Rules, 15 per cent applied the Rules for Expedited Arbitration and 10 per cent were ad hoc cases where the institute only appointed the arbitrators. Regarding the composition of the arbitral tribunal, the vast majority of the cases commenced in 2022 (77 per cent) saw the appointments of sole arbitrators. The number of international cases increased from 25 per cent in 2021 to 37.5 per cent in 2022. Almost one-third of the cases administered by the FAI in 2022 were conducted in the English language (31.3 per cent).^[8]

At the time of writing, both the caseload and the amount of international cases in 2023 seem to be in line with the numbers seen in 2022.

With respect to speed and efficiency, the FAI continues to be a very high-performing institute. The median duration of arbitrations in 2022 was 8.3 months under the Arbitration Rules and 5.4 months under the Expedited Rules, respectively. The institute is also known to appoint a significant amount of female arbitrators and mediators. This is evident from the statistics of 2022: the amount of female arbitrators appointed by the institute rose from 25 per cent in 2021 to a total of 32.3 per cent in 2022. The corresponding number in 2020 was 26 per cent.^[9]

The vast majority of the cases administered by the FAI in 2022 were post-M&A disputes (28 per cent), while 10 per cent of the administered disputes related to shareholder agreements, and 8 per cent concerned construction matters. In recent years, investment arbitration has been a hot topic in the Nordics. Indications of the trend making its way to Finland are noticeable in the FAI statistics for 2022, as disputes concerning investment agreements were included in the statistics of disputes pending under the FAI in 2022 (1.3 per cent of the cases in 2022).^[10]

As it can be very difficult to predict what kinds of disputes may arise from a certain contract at the time of drafting, the FAI rules of 2020 include certain mechanisms for added flexibility in the choice between the FAI Arbitration Rules and the Expedited Rules after a dispute has arisen. One of these mechanisms is the invitation for parties to comment on the appropriate rule set in the request for arbitration as well as in the answer to the request for arbitration. In 2022, one case that originally was set to be conducted under the Arbitration Rules was instead referred to be conducted under the Expedited Rules, while three cases originally applying the Expedited Rules were instead referred to be conducted under the Arbitration Rules.^[11] This shows that the opportunity to comment on the appropriate rules has been appreciated by the users.

In that same vein, the rule update also brought with it a new model clause, commonly referred to as a ‘combination clause’. This provides for expedited arbitration as a starting point, but gives the institute the authority to – at the request of a party – decide that the FAI Rules should be used instead, if the institute considers this to be appropriate taking into account the amount in dispute, the complexity of the case and other relevant circumstances.^[12] At the time of writing, this clause has already been inserted into some of the agreements on the basis of which FAI arbitration has been commenced, further evidencing that users are welcoming the added flexibility.

The Finnish Arbitration Act

The Finnish Arbitration Act^[13] has been in force since 1992. In addition to the Arbitration Act, Finland has ratified and enacted the 1958 New York Convention and ratified the International Centre for the Settlement of Investment Disputes 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 of 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 of arbitrators to order interim measures, and the prospect of lengthy setting-aside proceedings resulting from the possibility to appeal the district court’s decision to the court of appeal and, ultimately, to the Supreme Court.

A potential revision of the Arbitration Act has been on the agenda for a few years. In January 2019, the Finnish Ministry of Justice announced the commencement of the revision process of the Arbitration Act. The Ministry established a working committee that was due to study options for the reform until the end of 2021.^[14] However, the mandate of the working group expired at the end of 2021.

The revision of the Arbitration Act is set to continue, as Finland’s new government (inaugurated on 20 June 2023) has included said revision in its Governmental Programme. The Arbitration Act will, according to the Governmental Programme, be modernised in technical respects to correspond to best international practices. Furthermore, the government has stated that it will prepare the legislative amendments needed in order to further promote competitiveness of Finnish arbitration activities.^[15]

Finnish courts remain arbitration-friendly

Recent case law further confirms the prevalent arbitration-friendly approach of the Finnish courts. Notably, the Market Court has declined jurisdiction over claims that were brought in relation to a contract that contained an arbitration clause, while in another case it confirmed that a previous ICC award did not create a res judicata effect with respect to different claims presented in the Market Court. Furthermore, the Supreme Court recently confirmed that a pathological arbitration clause does not render the arbitration agreement null and void. In the following, we will briefly address these cases and other relevant case law.

First, in a case brought by a patent holder against an alleged infringer of the said patent, the Market Court considered that it lacked jurisdiction over some of the claims as they related to a settlement agreement, which contained an arbitration clause.

The patent holder, acting as the claimant, had argued that the Market Court should render a judgment on a variety of claims, some of which were put forth based on, for example, copyright legislation, while others related to a certain patent. As the usage of that patent was the subject of a previous settlement agreement that contained an arbitration clause, the respondent argued that the Market Court lacked jurisdiction to hear any claims related to that patent. The claimant, on the other hand, argued that he was not a party to the settlement agreement, and it also did not bind the respondent, as the respondent’s predecessor had signed it. However, the Market Court concluded that both the respondent and the claimant were bound by the settlement agreement, as it stated that it would also bind other patent holders (such as the claimant) and that by law, the rights and obligations of the respondent’s predecessor had been transferred to the respondent.

While the resolution of intellectual property disputes in and of itself falls within the jurisdiction of the Market Court, such jurisdiction is not exclusive in certain civil or commercial matters where the parties are allowed to reach a settlement. As such, the Market Court agreed with the respondent and concluded that owing to the arbitration clause in the settlement agreement, it lacked jurisdiction to hear the claims related to the alleged infringement of the patent that was the subject matter of the settlement.^[16]

In the second case, the respondents had made a plea of inadmissibility and claimed that the previously rendered arbitral award created a res judicata effect. The Market Court had to evaluate whether a previous ICC arbitral award had any impact on claims presented in the Market Court on the basis of the Finnish Unfair Business Practices Act. While mindful of the award in question, the court concluded that this arbitration concerned a contractual dispute between the parties, and that the remedies now requested in the Market Court – such as a conditional fine – were not within the arbitrator’s jurisdiction, but rather fell within the exclusive jurisdiction of the Market Court. As such, the Market Court concluded that the claims presented were admissible, as they had not previously been neither raised nor granted or dismissed in the arbitration.^[17]

The Market Court rendered its decision in the main matter in June 2022. The Market Court reiterated its decision of 22 March 2022, according to which the arbitral award did not create a res judicata effect in the matter. The Market Court further emphasised that a foreign arbitral award shall – as a general rule – be recognised in Finland. Consequently, the Market Court noted that the arbitral award is to be given evidentiary value in the matter, to the extent that the submissions of the parties concerned issues addressed in the arbitral award.^[18]

The third case concerned a pathological arbitration clause included in a shareholder agreement between the parties. According to the pathological arbitration clause, the parties had agreed that a non-existing entity should appoint a sole arbitrator to resolve disputes arising from the agreement in question. The case was originally appealed from the District Court of Kanta-Häme to the Turku Court of Appeal. The Turku Court of Appeal confirmed in its decision that the arbitration clause was valid despite this, and that in such an instance, the court should appoint an arbitrator as per section 17 of the Finnish Arbitration Act, unless it is evident that the arbitration has no legal grounds. As there was no reason to suspect a lack of legal grounds, the Turku Court of Appeal ordered the case to be returned to the District Court for the appointment of an arbitrator.^[19]

The decision of the Turku Court of Appeal was thereafter appealed to the Supreme Court. In June 2023, the Supreme Court rendered its decision in the matter. The Supreme Court emphasised, among other things, that the threshold for not appointing an arbitrator on the basis of lack of legal grounds is intended to be very high. According to the Supreme Court’s decision, there were no grounds to change the outcome of the decision rendered by the Turku Court of Appeal. The Supreme Court consequently returned the case to the District Court of Kanta-Häme for the appointment of an arbitrator.^[20]

In addition to these three cases, the Rovaniemi Court of Appeal has recently rendered another decision that merits mentioning, as it constitutes one of the few instances where a Finnish court has set aside an arbitration clause.

By way of context, Finnish contract law includes a provision according to which a contractual clause may, in certain occasions, be retrospectively adjusted or set aside if the application of it would constitute unfairness or lead to an unfair result.^[21] However, this provision is extremely rarely applicable in commercial contracts between two parties of equal strength, and the threshold for the applicability of this provision is high.

Nevertheless, the Finnish Supreme Court has confirmed in its case law that an arbitration clause may, in exceptional cases, be set aside also in commercial contracts, if the position of one of the parties is, for example, equal to that of a consumer or an employee, and if its financial position would not allow for the party in question to bear the costs of initiating arbitration.^[22]

The recently rendered judgment of the Rovaniemi Court of Appeal did, however, not concern a commercial contract but a coaching agreement between a coach and a sports association. The issue was whether an arbitration clause included in the coaching agreement should be considered binding in light of the circumstances at hand. According to the parties’ coaching agreement, any disputes were to be finally resolved in arbitration. The Rovaniemi Court of Appeal underlined that the agreement constituted an employment agreement, that the parties were not equals, and that the coach was not in a financial position to initiate arbitration. The Court of Appeal concluded that the application of the arbitration clause would lead to an unfair result, that the arbitration clause should be set aside and that the general courts had jurisdiction to assess the matter.^[23]

It should be noted that the Finnish Supreme Court has granted leave to appeal, and the decision reached by the Court of Appeal is therefore not final and binding.^[24]

In any event, the outcome of this case does not change the prevalent arbitration-friendly approach of the Finnish courts.

Conclusion

Over the past few years, Finland has seen many developments in international arbitration. The well-prepared and professional FAI, and the state-of-the-art FAI Arbitration Rules, have contributed to the inclusion of FAI arbitration clauses in many major contracts between a Finnish and an international party. The number of international arbitration cases administered by the FAI has continuously increased.

An element that helps consolidate these developments are the national courts, which are generally arbitration-friendly. 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. The training formerly known as the ‘Arbitration Academy’ is set to be replaced in 2023 with the new and improved ‘Dispute Resolution Academy’. The Dispute Resolution Academy aims to increase know-how and skillsets within arbitration, mediation and redemption disputes (in accordance with the Finnish Limited Liability Companies Act) both from an advocacy and dispute resolution point of view.

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 also 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 leave much room for nonsense. The 2022 Global Innovation Index ranks Finland in ninth place among 132 countries and economies around the world, whereas several corruption indexes rank Finland on the shared first place among the three least corrupt countries together with Denmark and New Zealand. As such, Finland remains a prominent option for where to seat your arbitration.

Footnotes