An arbitral award can be set aside, for instance, if it has been based on legal facts that have not been invoked by the parties. The circumstances on which the tribunal has based its award should never come as a surprise to the parties. The parties must always have an appropriate opportunity to present their respective cases, i.e. to present their claims, arguments and evidence as well as comment on the claims, arguments and evidence of the opposing party. Both parties must therefore be given an opportunity to comment on all the circumstances on which the award is based. Generally, it is rare that claims regarding the refusal or limitation of such an opportunity succeed. However, this was specifically the reason for the setting aside of an arbitral award by the Helsinki Court of Appeal on 23 May 2019 (not final).
A customer and a service provider had had a dispute on, among other issues, whether an agreement involving helicopter services had transitioned into an agreed subsequent stage, thus justifying the use of new invoicing criterion. According to the customer, the service provider had breached certain contractual obligations regarding the reporting of data, which was allegedly an express requirement for the transition to the next stage. The service provider had refuted the customer’s interpretation of the agreement. In the setting aside process, it was noteworthy that the service provider had argued in the arbitration that the parties had had a mutual understanding regarding the transition to the next stage and that the customer had waited over a year before explaining what data the customer had expected to receive in the service provider’s reports.
The arbitral tribunal deemed that the agreement had been unclear, and that the service provider could have justifiably understood the agreement the way it had. Due to the ambiguity of the situation, the customer had a pronounced obligation to notify the service provider of any alleged shortcomings in the agreed service. As the customer had failed to notify, the service provider had a right to trust that its understanding of contractual obligations was correct. Due to the actions of the customer, the parties had tacitly agreed on the transition to the next stage.
The Court of Appeal (and Helsinki District Court) deemed that the service provider had only referred to the aforementioned mutual understanding concerning the transition to the subsequent stage and the customer’s failure to notify in an effort to support the service provider’s argument that the reporting of data was not a requirement for the transition to the subsequent stage. In the Court of Appeal’s view, the service provider had not, with its above arguments, invoked the grounds on which the arbitral tribunal had based the final award (i.e. that the customer had neglected its duty to inform the opposing side of the reporting requirement and that the parties had reached a tacit agreement concerning the transition to the subsequent stage). Therefore, the arbitral award had to be set aside pursuant to Section 41, Sub-section 1, Paragraphs 1 and 4 of the Finnish Arbitration Act.
Whether a party has fulfilled its burden of claim is often open to interpretation. Parties typically go into great detail when they describe the relevant events and the actions of the parties in front of an arbitral tribunal. An arbitral tribunal may then understandably consider that it has a right to draw legally relevant conclusions from those explanations. However, the concept of burden of claim requires that a party must expressly bring forth the legally relevant circumstances which constitute a certain legal fact upon which the final award should be based. Example: “[…] Accordingly, the right of action has been lost due to failure to notify within a reasonable time.” or “[…] Accordingly, a tacit agreement has been concluded.”
In our opinion, the ruling of the Court of Appeal does not change the current legal state. The setting aside of an arbitral award still requires that the arbitral tribunal has committed a grave procedural error. However, the ruling serves as a useful reminder for arbitrators and parties alike. Arbitrators should be careful not to base arbitral awards on legal facts that have not been expressly invoked by the parties. As for the parties, they should clearly state in their written submissions all legally relevant circumstances and itemize the legal facts those circumstances are deemed to constitute as well as clearly invoke those legal facts with the express goal to have them accepted as the basis of the final award.