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

Transcription

1 Page 1 (40) SVEA COURT OF APPEAL JUDGMENT Case No. 20 June 2013 T Division Stockholm CLAIMANT 1. Dongfang Boiler Group Co., Ltd 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 Stockholm RESPONDENT 1. Foster Wheeler Energy Corporation Perryville Corporate Park Clinton New Jersey USA 2. Foster Wheeler North America Corporation Address as above Counsel to 1-2: Advokat Mr. N Advokatfirman Lindahl KB P.O. Box Stockholm MATTER Challenge of arbitral award Document ID Postal Address Visiting address Telephone Telefax Opening Hours Box 2290 Birger Jarls Torg Monday Friday Stockholm :00 am 3:00 pm svea.avd2@dom.se

2 Page 2 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).

3 Page 3 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 proceedings and that the arbitrators would in the first stage settle, by way of a

4 Page 4 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

5 Page 5 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 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, 2 nd 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 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 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 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.

6 Page 6 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

7 Page 7 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

8 Page 8 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.

9 Page 9 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

10 Page 10 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

11 Page 11 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

12 Page 12 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

13 Page 13 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

14 Page 14 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 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. Errors with respect to evidence

15 Page 15 On 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

16 Page 16 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

17 Page 17 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 prohibited in perpetuity to manufacture its own power plants.

18 Page 18 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

19 Page 19 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

20 Page 20 (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 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 ed to Dongfang on 14 February 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 from Foster Wheeler. On 18 February 2013 Foster Wheeler forwarded a draft Second Memorandum of Correction to the arbitrators by .

21 Page 21 Dongfang received the s 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

22 Page 22 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.

23 Page 23 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

24 Page 24 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 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.

25 Page 25 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

26 Page 26 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

27 Page 27 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 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).