SVEA COURT OF APPEAL JUDGMENT Case no Division T

Transcription

1 SVEA COURT OF APPEAL JUDGMENT Case no T Chamber 0208 Stockholm CLAIMANT KPMG AB, P.O. Box Stockholm Counsel: Advokaterna Jonas Benedictsson and Stefan Bessman Baker & McKenzie Advokatbyrå KB P.O. Box Stockholm RESPONDENT ProfilGruppen AB, P.O. Box Åseda Counsel: Advokaterna Håkan Pihl and Anna Alehem Advokatfirman Wåhlin Box Gothenburg SUBJECT MATTER Challenge to arbitral award ARBITRAL AWARD CHALLENGED Arbitral award between the parties rendered in Stockholm on 22 December 2010 THE COURT OF APPEAL S JUDGMENT 1. The Court of Appeal sets aside the arbitral award rendered between the parties on 22 December 2010 (items 1 and 3 of the award). 2. The Court of Appeal s decision of 22 February 2011 on stay of enforcement shall remain in force. 3. Profilgruppen AB shall reimburse KPMG AB its costs incurred before the Court of Appeal, in the amount of SEK 296,415, of which SEK 294,000 correspond to counsel s fees, plus interest under Section 6 of the Interest Act from the date of the Court of Appeal s judgment until payment is made.

2 BACKGROUND As a result of a dispute between KPMG AB (KPMG) and ProfilGruppen AB (ProfilGruppen), an arbitral award was rendered in Stockholm on 22 December ProfilGruppen requested arbitration against KPMG on 8 April 2008 and appointed advokaten E.M.R. as arbitrator. In May 2008, KPMG appointed advokaten A.C. as arbitrator. Together the two arbitrators appointed Justice S.L. as the third and presiding arbitrator. KPMG was ordered to pay ProfilGruppen SEK 8 million plus interest by the arbitral award. Each party was to bear its own costs and the parties were, as between themselves, liable for the remuneration of the arbitrators, with half each. The Court of Appeal has on 22 February 2011 ordered that enforcement of the arbitral award be stayed (stay of enforcement). RELIEF REQUESTED KPMG has requested the Court of Appeal to set aside the arbitral award rendered between the parties on 22 December 2010, both as concerns the award on the merits and the award on costs (items 1 and 3 of the award). ProfilGruppen has contested the request for relief. The parties have requested reimbursement of their costs incurred before the Court of Appeal. GROUNDS FOR THE ACTION KPMG Circumstances, which may diminish confidence in A.C. s impartiality, have been at hand. He has therefore been incapable of acting as arbitrator. The arbitral award shall therefore be set aside under Section 34(1).5 of the Arbitration Act (1999:116) ([the Act ]),

3 ProfilGruppen A.C. has not been incapable of acting as an arbitrator. There have been no circumstances diminishing the confidence in A.C. s impartiality. There are no grounds for setting aside the arbitral award. THE PARTIES ELABORATION OF THE MERITS KPMG The arbitration pertained to KPMG s liability for advice, which in ProfilGruppen s submission, was erroneous. After an extensive exchange of written pleadings, a final hearing in the case was held on 30 November The arbitral award was made on 22 December Concurrently with the making of the award, KPMG received on 20 December 2010 a letter from A.C. s colleagues at Roschier Advokatbyrå, advokaterna C.L. and H.F. J.D., an authorised accountant employed by KPMG, received an in essence identical letter from them at the same time. In the letters advokaterna L. and F., acting as counsel for HQ AB and HQ Bank AB, notified KPMG and J.D. of claims. The claims were said to relate, inter alia, to an engagement as adviser for HQ AB and HQ Bank AB. The letters referred to an ongoing investigation and were ended by a request for the production of certain documents. The request has been repeated at a later time with the information that legal action will be taken if KPMG and D. do not comply with the request. It appears from the letters that Roschier Advokatbyrå had accepted to represent HQ AB and HQ Bank AB against KPMG and D. during the course of the arbitration. Both A.C. and C.L. have submitted written comments in response to the filing of applications for disciplinary reprimand against them with the disciplinary board of the Bar Association. C.L. has in a submission dated 29 March 2011 stated, inter alia, the following. By an sent to him and A.C. on 15 October 2010, Roschier Advokatbyrå was asked to accept instructions as counsel for HQ AB against a number of physical persons and KPMG. He replied that the firm would be happy to receive such instructions provided that there were no conflict of interests. At the time, it was not entirely clear

4 who the opposing parties would be, but it was clear that KPMG could become an opposing party. As it was an engagement, which could be assumed to be substantial, he discussed the matter with A.C., who is the chairman of Roschier and the managing partner of the Stockholm office. Considering the magnitude of the engagement, they discussed the staffing thereof, among other things. A.C. disclosed that he was involved in something relating to KPMG, but he did not think that it, at the time, prevented acceptance of instructions against KPMG. On 18 October, HQ AB sent an exact list of the parties, in relation to who claims could come to be raised. Based on the list, he made a conflict of interests check by to all partners and senior associates of Roschier. This so-called conflict check did not prompt any objection, after which the engagement was accepted. Objectively speaking, a conflict of interest in the arbitration arose by the acceptance of the engagement as counsel for HQ AB. The firm s conflict check must thus be considered to have been insufficient. A.C. has, in his comment dated 18 May 2011, stated, inter alia, the following. He and C.L. had several contacts in relation to HQ AB s enquiry as to whether the firm could assist the company with an investigation into the liability of certain physical persons and KPMG. The main question was whether the firm could accept HQ s instructions in relation to the members of the board. He could eventually conclude that certain other instructions did not prevent the law firm from being instructed to investigate the liability of the board members and certain other physical persons. He is convinced that he informed C.L. that he acted as arbitrator in an arbitration, to which KPMG was party. The conversation did not prompt any particular reaction other than that the firm at least for the time being was barred from accepting instructions in relation to KPMG. He was for his part convinced that such acceptance would not be given. It was the only purpose for which he informed about the mandate as arbitrator. It is apparent that the firm has failed in its conflict check when HQ AB s instructions in relation to KPMG were accepted and that, objectively speaking, a conflict of interest was at hand at that moment. A.C. has had an obligation under Section 9 of the Arbitration Act to disclose the instructions received from HQ AB. If KPMG had been made aware of these instructions, the company would have objected to the conflict of interest in the arbitration. The instructions have given rise to a conflict of interest for A.C. He has

5 thereby been rendered incapable of continuing his mandate as arbitrator. A.C. has nevertheless not resigned from his appointment. Since a conflict of interest shall be examined objectively, it does not matter how much A.C. actually knew about the instructions. It is submitted, however, that he was aware of the instructions in relation to KPMG already during the arbitration or at least that he should have been aware thereof. ProfilGruppen On 18 October 2010, a matter was registered with advokatfirman Roschier, in which HQ AB was the client and a number of physical persons were recorded as opposing parties. Roschier had received instructions from the board of HQ AB to assist in the investigation of the events and circumstances that caused the Financial Supervisory Authority to revoke all of HQ Bank s licenses. KPMG was not registered as an opposing party at that time. During the time when the arbitration was pending, the instructions were likely in an investigation phase without any actual opposing parties or with preliminary opposing parties. HQ AB s instructions pertained to something completely different than the subject matter of the arbitration. KPMG was first registered as an opposing party on 23 December A.C. has not been aware before that time that the firm represented HQ AB in relation to KPMG. He has therefore not been aware of any circumstance justifying doubts about his impartiality. The question whether A.C. has been incapable of acting as arbitrator shall be examined objectively. For someone to be affected by a circumstance, objectively speaking, the person in question must be aware of the circumstance. A.C. has assumed that Roschier did not accept any instructions in relation to KPMG during the course of the arbitration, since a conflict of interest was at hand. He had accordingly no reason to investigate the actual state of affairs. Since he had no knowledge of the fact that the instructions had been accepted, he cannot have been incapable as arbitrator nor can he have failed to fulfil his disclosure obligation. Whether or not he should have been aware of the instructions is irrelevant.

6 It follows from the award that the arbitrators have made a conflict of interest examination and concluded that no grounds barring any of them from participating had been raised or otherwise found to exist. REASONS The Evidence The Court has resolved the case after a final hearing. A.C. has given witness testimony. Documentary evidence has been invoked. A.C. has in his testimony before the Court of Appeal stated mainly the following. He spoke to C.L. several times about HQ AB s question whether the law firm was willing to accept instructions against board members and certain others, amongst them KPMG. He disclosed that he was acting as arbitrator, appointed by KPMG, and that the firm could not accept any instructions against KPMG at that time. The question was at that time whether the firm could accept instructions against others than KPMG. After checking, A.C. came to the conclusion that it would be possible. No registration of KPMG as an opposing party was made during the time the arbitration was pending. At the time of the hearing he knew that the firm conducted a substantial task for HQ but not that it was aimed at KPMG. Before that, in November or December, he had a conversation with C.L. about the staffing of the team carrying out the instructions. He did not make the connection that this could be directed against KPMG as well, even if he now thinks he should have understood this. The Court of Appeal s Assessment Section 8 of the Arbitration Act provides that an arbitrator shall be impartial. An arbitrator shall, upon request from a party, be released from his or her appointment where circumstances, which may diminish confidence in the arbitrator s impartiality, are at hand. Items 1-4 of the provision specify circumstances, which always shall be deemed to diminish confidence in the arbitrator s impartiality. The list is intended to be exemplifying in nature and not exhaustive (see Govt. bill 1998/99:35 p. 85 and p.

7 218). Section 9 obliges an arbitrator to inform the parties about circumstances, which under Section 8 may bar him from acting as arbitrator. If an arbitrator has been incapable due to any circumstance specified in Section 8, the arbitral award shall, upon a challenge, be set aside wholly or in part (Section 34(1)(5)). The Supreme Court s statements in the case reported in NJA 2010 p. 317, with references to NJA 1981 p and NJA 2007 p.841 as well, serve as a general starting point. There it is held that the rules on conflicts of interest aim to protect the objective administration of justice and that it is important that the rules are applied so as to disallow an arbitrator, who is covered by such a rule, from participating in an arbitration also where there is no reason to assume that that he will allow himself to be influenced by his relation to one of the parties in the conduct or determination of the case. The Supreme Court concludes that the issue whether there are circumstances which may call the arbitrator s impartiality into question accordingly must be examined against an objective standard. It is furthermore emphasised that standards of objectivity and impartiality must be particularly high for arbitrators since faults in the examination of the evidence or application of law cannot justify setting aside an award. The record shows that Roschier Advokatbyrå received an enquiry from HQ AB in October 2010 on instructions involving, among others, KPMG at least as a potential opposing party. From C.L. s information submitted to the Bar Association, it is clear that Roschier accepted the instructions involving KPMG, among others, on 19 October It is clear also from the letters sent on 20 December 2010 by C.L. and H.F. to KPMG and J.D., that Roschier had accepted the instructions against KPMG, even if KPMG was not recorded as an opposing party in the firm s conflict check system before 23 December It has been considered good practice that members of the Swedish bar decline appointments as arbitrators when the lawyer or another lawyer at the same law firm is assisting one of the parties, or someone who has a party to the arbitration as an opposing party (Madsen, Skiljeförfarande i Sverige, 2 nd ed., p. 119). There must

8 typically be reasons to call an arbitrator s impartiality into question also if the law firm at which he practices accepts instructions against the party who has appointed the arbitrator. This is an unofficial translation from The fact that Roschier has accepted instructions involving KPMG as an opposing party entails, in the Court of Appeal s opinion, that A.C. has been incapable of acting as an arbitrator at least if he was aware of the instructions when the arbitration was pending. KPMG has submitted that A.C. had such knowledge and that he should be deemed incapable due to the instructions, even if he was unaware of them. ProfilGruppen has on its side submitted that A.C. was unaware that the law firm had accepted instructions aimed at KPMG and that thus no circumstance which may diminish confidence in his impartiality is at hand. The Court of Appeal first examines the issue of when A.C. became aware of the instructions, or rather when A.C. learnt of the instructions against KPMG and does the following assessment. It is clear from C.L. s and A.C. s submissions to the Bar Association, as well as A.C. s testimony before the Court of Appeal, that C.L. and A.C., after receiving the enquiry from HQ AB for assistance in the matter against KPMG among others, discussed whether the law firm could accept the instructions. An message sent on 18 October 2010 by C.L. to the other partners and senior associates at Roschier advokatbyrå has also been invoked in the case. The message was sent in order to make a conflict of interest check relating to HQ AB s enquiry for assistance in the matter. It is clear from the message that one of the potential opposing parties was KPMG. There is thus no doubt that A.C. already in October 2010 was aware that the law firm had received an enquiry pertaining to instructions against KPMG among others. There is, on the other hand, diverging information on what occurred during C.L. s and A.C. s conversation before the acceptance of the instructions. According to C.L. s submission to the Bar Association, A.C. clearly informed that his involvement in something which related to KPMG did not at that time prevent acceptance of the instructions. A.C. has in his submission to the Bar Association stated that he is convinced that he informed C.L. that he was appointed arbitrator in an arbitration, to which KPMG was party, and that the reaction was that the law firm could not accept

9 the instructions against KPMG, at least not at that time. A.C. has in his testimony before the Court of Appeal essentially accounted for the occurrences described in the submission to the Bar Association and also stated that he did not learn that Roschier had accepted the instructions also in relation to KPMG before 23 December C.L. has not given testimony in the case. It can furthermore be concluded that the letters from C.L. and H.F. to KPMG and J.D. sent on 20 December 2010 do not show what A.C. may have known about the instructions against KPMG at that time. Under these circumstances, the Court of Appeal does not consider it to be proven in the case that A.C. was aware of the instructions against KPMG before such time the arbitration was terminated by the final award made on 22 December The next issue which the Court of Appeal has to examine is whether A.C. shall be considered incapable, regardless of his knowledge of the instructions. The question of an arbitrator s incapability shall be examined objectively and without reference to his or her capability or willingness to determine the dispute in an impartial manner. The assessment the Court of Appeal has to undertake shall thus not consider the risk that A.C. really would have been affected by the fact that the law firm had accepted the instructions. Instead it is the circumstances surrounding the instructions accepted by Roschier during the fall of 2010 and whether these, from an objective perspective, create the impression of bonds or antagonisms which diminish confidence in A.C. s impartiality as an arbitrator. In the Court of Appeal s opinion, the fact that the law firm accepted instructions against KPMG at the same time as an arbitration, to which KPMG was a party, was pending is in itself sufficient to diminish confidence in A.C. s impartiality. On top of that, the instructions are extensive with, to the extent it can be assessed, a significant financial value for the law firm. It is also relevant that A.C., as a partner at Roschier and responsible for the Stockholm office, has a very central position in the law firm. A partner in such a position must typically be assumed to be informed about instruction of the kind contemplated here. Finally, the fact that KPMG was recorded as an opposing party in Roschier s conflict check system first on 23 December 2010,

10 i.e. the day after the final award was made in the arbitration, must be considered to add to an impression of circumstances, which diminishes confidence in A.C. s impartiality in the arbitration. These facts seen together are such circumstances which from an objective perspective, and regardless of A.C. s knowledge of them, typically diminish confidence in his impartiality. In light of this assessment, KPMPG s request for relief shall be granted and the arbitral award set aside. With this outcome ProfilGruppen shall compensate KPMG its costs before the Court of Appeal. KPMG has requested compensation for legal representation in the amount of SEK 294,000, which ProfilGruppen has admitted as being reasonable in itself. KPMG has in addition hereto requested compensation for disbursements. The Court of Appeal finds the request reasonable. The Court of Appeal considers that the case contains issues, in relation to which it is important for the evolution of case law that an appeal to the Supreme Court may be heard. The Court of Appeal thus allows the judgment to be appealed (see Section 43(2) of the Act). HOW TO APPEAL, see appendix Appeal on at the latest Senior Court of Appeal Judge C.R. and Court of Appeal Judges M.E., rapporteur, and U.S.G. have participated in the judgment. Unanimous.